Value Investing & Behavioral Finance
This is the universal truth, people earn money only when they do work, and putting money which is work for you is called Investing. In simple words, we say "Money work for you, not you work for money". Basically investing is a combination of science and art. If you want to be a successful long-term investor, it is very much required to understand the basic pillars of investment. The pillars are :
- Value investing strategies (which is developed by Benjamin Graham) and
- Understanding the basics of Behavioral Finance and how it affects markets.
Let us understand what is value investing, The basic idea behind value investing is to buy the stock when prices are low relative to its intrinsic value, or its business worth and then wait for prices to move up. This type of investing requires sufficient patience to identify a good company and wait for the strategy to work.
Remember Identifying a good company is not necessarily a good investment :
You keep in mind that a good company is not necessarily the same as a good investment. A good company is a company that has high revenue, consistent earnings, competitive advantage, etc. but it's become a good investment if you purchase at a favorable price or below its intrinsic value. In simple terms Buying a good company at a bargain price makes it a good investment.
Investment return or stock return is depend on two main factors:
- Price Appreciation (the increasing price of the stock)
- Dividend (It is the yearly cash flow from the stock that you hold)
The studies of investors' psychology are called Behavioral finance. The implications of behavioral finance are clear and it affects the market also :
- How we decide to invest,
- How we choose to manage those investments.
- How we think about money.
Emotions are very real in the sense that they affect people's behavior and thus ultimately affect market prices.
Remember that both pillars are important in investing and investment return.
Keep investing......Be Patience.......Wait for the right opportunity.......
 |
Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on Investment or recommend buying and selling any stock
