How can you make money with value investing?

If you are in need of extra money, you may obtain credit from banks. You can also consider value investing to earn profit and solve your financial problems. Value investing is buying stocks of a company whose market price is below the intrinsic value and selling them when the market price becomes equal to the intrinsic value.

In 1934, Benjamin Graham had invented the theory of value investing based on the assumption that all companies have 2 values – the market price which reflects the value of the company on stock exchange and the company’s business or intrinsic value. I believe that in the long run, stock prices reflect the intrinsic value, but, in short term, the market prices often differ from the real or intrinsic value. If you are a new investor, it is always better to find out the market capitalization (cost of acquiring the entire company) and the price to earnings ratio (P/E ratio). This will assist you to compare alternative stock investment opportunities. In this way you can earn a huge amount of profit and use it for any purpose. You can also pay off your debt and improve your credit history.

Before you invest in stocks of a company, you must determine why you are interested in investing in stocks of that particular company. Your decision to invest must solely depend on the fundamentals of the company like its current price, profits, management, etc. A major value investing mistake is speculations. If you speculate, you will suffer losses and may also face a bad credit situation by falling into debts. To earn maximum profit, you should invest only when there is sufficient margin of safety. In other words, there must be adequate difference between the market value and the intrinsic value.

It is best to invest when the market price is 40%-50% lower than the business value. I would also advice you to go for value investing only when you intend to invest in the stock for about ten years. It is evident on Wall Street every day that long-term stocks are more profitable than even the best managed short-term stocks.