The Power Of Value Investing: When investing your capital, you want to succeed in the first place and achieve the highest possible return. The Power Of Value Investing: Value-oriented Investing, But for that to work, you need a strategy. This is where the search starts because there are very different strategies that you can fall back on. One of them is value investing.
Value investing is a strategy that focuses on value. Instead of using rough estimates and future thoughts as the basis for the investment, you act here according to simple and very logical principles. That can bring with it a certain security for your plant.
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The aim of value investing is to find undervalued companies through the use of key figures and to invest in them.
The strategy is designed for a longer-term investment. Therefore, it is especially interesting for investors who want to tie their capital longer.
Definition: What is Value Investing?
Value investing is an investment strategy that is also seen as a value-oriented investment. When deciding whether to buy or sell, this investment strategy is primarily based on real-world information. This is often spoken of intrinsic value. That’s why Value Investing is fundamental analysis.
In comparison, there are various analyses that focus on technical analysis. Here, the previous development, which has made a company in focus. Precisely because the investment depends above all on the future, value investing also wants to be value-oriented.
The basis for the value of investing in various key figures, which will be discussed in more detail. In this form of investment, you are looking for individual securities. These must be undervalued. We also like to talk about stock picking here. In this form of analysis, the intrinsic value of the stock is determined as accurately as possible by fundamental analysis.
Value investing is based on different key figures.
If the price of the security is significantly lower than the intrinsic value, it is worth investing. The valuation assumes an imperfect capital market. Price-earnings ratio and price-to-book ratio were important points in value investing right from the start. An undervaluation is expected to result in excess returns. Reasons for these are:
Over time, the undervaluation is reduced.
The performance is above average over time. This is related to the strength of the company.
The dividend yield is above average.
The probability of bankruptcy is low
The most important key figures for value investing
To use value investing effectively, you need metrics that you can use. Here are some metrics that are considered particularly important. This includes:
The return on capital as key figures in value investing
The capital of a company is a particularly important measure, as it can give indications of how much money is made by the company. Interesting is the question of what influence the capital has exactly here. To start a business and offer something to customers, you need to invest capital first. For example, if you invest 500,000 euros in your store and make profits of 250,000 euros per year, then your capital will generate a return of 50% per year.
It looks different if your profits are only 5,000 euros per year. In that case, your capital earns only 1% per annum of return. Here is already recognizable how worthwhile the investment in a company can be. If a company has a very high return on investment, it shows that they bring very good growth. Therefore, this value flows into the value of investing. However, a distinction is made between different capital returns:
return on equity
Return on assets
Operating result from the return
It is recommended that you pay attention to a return on equity of at least 15% in value investing. Not only should this have been retracted in one year, but it should also have a certain stability.
The debt of the company as an important indicator
Many companies rely on debt, as they give them the opportunity to increase their sales. They invest large sums, even though they know that profits will not be that high. Therefore, debts are not necessarily something bad. But they can provide insight into how high the risk of investing in a company is and how successful the business model really is.
If you are considering investing in a debt-ridden business, you should first consider how the money invested will be used and how high the risk will be. Basically, a good company should not need debt so it grows. If there is a good business model, it carries itself.
Modern Forms Of Investing Money
Invest money – which modern investment forms are there?
The Internet and globalization are providing more and more modern investment options, which may differ greatly from the traditional ways of banking and stock exchange – but also provide you with other risks and rewards.
Whether by new cryptocurrencies, technological innovations or private individuals – which modern options offer you next to the classic investment opportunities, we explain below.
The stock market is great for investing in money. Even with smaller sums, long-term and sustainable investments can be made there.
Invest money in bitcoins
Bitcoin is a so-called cryptocurrency bound to calculated formulas – these formulas can only be computed and time-consuming, making their own more lucrative and lucrative to many.
With Bitcoins you can already pay online and trade – outside of the internet, the fictitious coin is useless.
You can either buy and hoard Bitcoins until their price goes up and the sale looks lucrative – or invest in Bitcoin stock on the stock market, which is indirectly tied to their price, which means they are derivatives. Investing money is thus possible through the stock market or the purchase on the Internet.
Invest money in FinTechs
FinTechs: are technology-driven start-ups and Internet companies. They compete especially in financial services such as asset management and payments by tailoring their offer to the needs of the client and thrusting established companies from the throne. You can invest in modern FinTechs mainly through stocks and bonds in the stock market.
Invest money in P2P personal loans
So-called peer-to-peer personal loans are approved by private persons to private individuals, so you lend your money to other people at terms agreed by you.
This is possible without intermediaries so that no costs are incurred by the bank as a brokerage or a financial service provider of any kind – you have to take care of yourself for the safety of your money or use a P2P platform that does this for you and also distribute your capital can.
Investing in the stock market – what should I pay attention to?
On the stock market, you can sometimes see better returns in the long term than investing money at the bank – especially as a pension and asset accumulation, investing in stocks and Co. is therefore particularly well suited.
But also on the stock market, you should pay a little bit of attention, so as not to get in distress, after all, you also take some risks with your investments.
Investing in the long run: While short-term speculation may appear glorious and profitable, it can also be a big shit – so opt for long-term equity and co-investment, as it helps to cope with stock price declines and stock market crashes.
Be smart: some brokers come up with immense promises and confuse you with technical terms that you may not understand. Therefore, do thorough research before investing and watch the stock market trends – including brokers, make sure you do not get black sheep. The rule is: only invest in what you really understand.
Weigh risks and benefits: High profits are also associated with high risks on the stock market – and vice versa. Do not trust anything that you can not endure in the end and take the risk with the benefit that makes the most sense for you.
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