Warren Buffett is truly a value investor. How you people can do value investing, what is it let’s understand it step by step. When you are buying shares of a company then shares have a value that is there. There is a difference between price and value. Suppose the value of the share is 100rupees but the price at which it is being sold in the share market could be 200. So the value is 100 but its rate is 200. If you will buy it at a price of 200 then is it good to buy it at that price? Warren Buffett says wait some time. In the share market, you can find thousands of Companies, out of thousand companies you can choose companies that are being traded at a value less than that of intrinsic value. Whose share is below their intrinsic value then you should invest in those companies for that you would have to wait, put in some thought and time. Value investing is an investment strategy that involves purchasing stocks or securities that are under-priced. In other words, the strategy helps in identifying securities that are trading below their intrinsic value. The intrinsic value of a share is determined by doing a fundamental analysis of the company. Value investing strategy capitalizes on the potential profits by purchasing stocks at low prices. However, these companies have good potential, though they are unpopular and undervalued.
How will you find intrinsic value?
There are some models-
ONE is Growth Model
Second is Dividend Discount Model
Third is Discounted Cash Flow Model,
Now you have understood that price is a different thing and value is different and when the share prices are below intrinsic value then we will buy it. Now the next point here is people think when there are corrections In the market means the market was going well and it corrected means it broke now. When it breaks then people come in panic, fear, they start to sell, and when they are in fear they feel what if it breaks more. Here you have to show smartness, you have to see whether it is the market or any share price of the company. If it goes below the intrinsic value then you can buy it either and if it Breaks more you don't have to panic. This correction is an opportunity for you. Generally, those who are smart investors when the market is breaking it is correcting what they do they don't put all of their money at once means if the market is below intrinsic value or any share price is below the intrinsic value then if they have 100% of the money but they put 30% of it for investment. Now the company's fundamentals are strong, then after that, if it is breaking then again it is an opportunity they will invest again 30% and if it breaks after that also then they will invest the remaining money of 30% in it. ?for When from there the market will revive then they will get a lot of returns that is why we get multi-bagger returns. When they do value investment, you have to understand that corrections are opportunities for you. You will find many investors in the news who say I want to see a lot of recessions in my life. There should be a recession. If the recessions come, you will see that the market is breaking, then we are getting a possibility to multiply our money. Let's move forward next to the theory which I am giving you here. Here comes the final theory. If you want to do value investing then understand very carefully that the stock prices in the long-term follow their intrinsic value. If today you are seeing a stock that is very above its intrinsic value then people think it will grow more and they make a mistake. When it is at its all-time high, they start buying from there and when it is correct from there then people get losses. You have to understand the stock will come near its intrinsic value in most of the company's You will see that the stock price today or tomorrow will come at its intrinsic value. It is true when it is going up and when stock price breaks after that also it is true that it will come near its intrinsic value. The intrinsic value increases over the time of stock. If a company is performing well then its price will also increase but if the price in between only increases like if there is unexpected growth then it is for some time after that it would go below to its intrinsic value so wait for some time have patience bring discipline. Warren Buffett says that value investing looks very simple but it is not easy. Value investing Patience is the key