4 strategy to value investment; Monsnish Pabrai

Everyone wants to be good at investing, but only a few people are ready to learn what it takes to be a successful investor. Firstly, you need to invest in yourself to be successful. Personal development is the first form of investment that will not fail you. What do I mean? It would be best if you read books as this is one of the best ways to gain knowledge. If you are to survive in the world of investment, be ready to read more books and gather pieces of information.

You need to continuously update your knowledge from what you used to know to what is happening in the economic market. When you search for more financial knowledge, you will get better daily. This will help level up your game, and there is no place where you will find a successful investor that will tell you that he doesn’t invest in himself by reading financial books. Secondly, you should be ready to research the knowledge acquired from books. When you are doing your research, gather evidence to support or dismiss what you read in books.

You need to understand the importance and role of research in investing. Research is the tool used to improve your awareness of what is happening in the stock market. When we understand this, it will be easy to know how to apply the principle of value investing. It is rare to see people fail when they research before taking action. As an investor, you don’t jump into the market and buy stocks you probably heard about from your friend. You need to build your knowledge around what you heard and do your research to confirm things for yourself. If you want to understand the stock market, be ready to research widely.

This brings us to the topic of today, “value investing”. We shall also be discussing how Monsnish Pabrai applied Warren Buffet’s strategy of value investing and how it worked well for him in his various investments. Before we proceed, let’s briefly understand “value investing”.

Value investing is a strategy investors use to yield a high return on their initial investment. These investors study and select stocks that appear to be available in the stock market for a price lower than their supposed value (actual value). A company’s stock can fluctuate based on a variety of reasons. Nobody can predict when a stock price will go down or up; that is why successful investors are always on the lookout to be informed about every little thing in the stock market.

Anything can affect the price of a company’s stock. Things that happen within and outside the company can affect its stock. The forces of demand and supply in the stock market also determine the price of a stock. As an investor, you need these strategies below to do well; it is a tested blueprint used by successful investors.

Strategy 1.

Understanding the business before investing

Before you invest in a stock, what do you know about that company? What product do they offer? You need to gather these pieces of information and study them before taking action. More than anything, all investors want to enjoy a high return on every invested capital. It is easier said than done. The hard part begins when you need to stay up and do a background check on the “net worth” of the company you are investing in. Every investment has a level of risk, but you can reduce the risk you expose yourself to by doing things right. And you do things right by calculating your degree of risk before grabbing every opportunity you see.

Strategy 2.

Practice diversification

Don’t put all you have in a single investment option. It helps if you think big. What happens if something should go wrong with that single investment? This is why you need to have a diversified portfolio. As you invest in stocks and bonds; you should also consider making tangible investments, for example; you can invest in real estate. When an investment does not go well, you can always rely on your other investment options. Allocate your resources across various industries, which will significantly reduce your level of risk.

Strategy 3.

Look for a company with a high competitive advantage

As an investor, you need to understand the term “MOAT”. Understanding this term will help you to invest in the right business. When investing in a stock with an intrinsic value, you must ensure that you invest in a company with an excellent brand image. When a company has an advantage over its competitors offering similar goods or services, you have nothing to fear because it will never go out of business (such a brand can maintain its competitive advantage over its competitors, known as an “economic moat”). Think of companies like Facebook and Coca-cola; they have a good brand image. There are also other reputable companies out there that are doing well in terms of product and service delivery. A company should be able to reduce its expenses while increasing its profit or revenue.

Strategy 4.

The margin of safety

This is the last strategy of effective investment where an investor considers only the stock or securities whose present value is significantly below the supposed market price. The difference between market price and the current stock price is the “margin of safety”. However, the way every investor sees this margin is quite different. It depends on “personal preference” and “investment strategy”. Every investor has a strategy to invest and spread out their portfolio. The father of value investing, Benjamin Graham, made this principle of investing widespread and understandable.

In conclusion,

If you are interested in starting your investment journey, please stick to this platform for more information. In the meantime, invest in personal development by reading books and being informed about the stock market condition.

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