Investing can often seem daunting to many people who want to start putting their money to work for them. This is largely due to the perception that investment opportunities require extensive knowledge of financial markets accumulated over many years. If this sounds remotely like you, terms like the stock market, stocks, and shares are likely making you feel a bit anxious and doubtful. Fortunately, however, this does not have to be the case. The truth is that there are several lucrative investment options and strategies that even beginners can benefit from.

About value investing

Value investing is an investment strategy that does not require universities to know the financial markets to benefit. Instead, by employing the very doable fundamentals of this strategy, you’ll also be using the tips and tricks used by the likes of Warren Buffet and Benjamin Graham to invest based on intrinsic value and grow your wealth. These principles include the following:

– Understand that companies have intrinsic value that can be bought and sold

– Define your margin of safety

– Rethinking the efficient market hypothesis

– Lead from the front

– Be diligent and patient,

Here’s how each of these value investing principles will work for you.

1. Understand the intrinsic value of companies

When it comes to investments, every company has intrinsic value that is often reflected in its financials. Stocks and shares are the avenues through which the average person can buy the value of these companies. It is important to note that stock and stock prices can fluctuate even though the intrinsic value of the company remains stable. In addition, the prices and sales of these shares and units are not announced per se. As such, you’ll need to do a bit of detective work to find stocks and shares in stable companies that sell for low prices, ensuring you earn more in the long run.

2. Define your margin of safety

Profits and losses when investing mainly depend on your ‘margin of safety’. You’re likely to make more profit with a healthier margin, since your margin of safety lies in the difference between the value of the stock and how much you pay for it. So a stock may be worth $50.00, but you bought it for $10.00. In this case, your margin is $40.00 ($50.00 minus $10.00).

Essentially, you maximize your margin of safety by buying your stocks or shares at lower prices (as low as possible) so that even if the level of growth is lower than expected, you can still minimize losses and make a profit on your investment when the time comes to sell. Once you buy your stock, simply wait until it reaches or approaches true (intrinsic) value.

3. Rethinking the efficient market hypothesis

Unlike value investors, investors who affirm the efficient market hypothesis believe that stock prices reflect the true value of a company. However, value investors do not subscribe to this assumption. Instead, they believe that stock prices can be trading below or above their true value. It is this true (or intrinsic) value that becomes the focus of value investing.

4. Lead from the front

Due in large part to the fact that value investors do not subscribe to the Efficient Market Hypothesis, they are less likely to follow the investment patterns or habits of the general trading population. That is, they are less likely to buy when everyone else is buying or to sell when they are selling. Instead, they may hold their own or sell when others buy, for example.

5. Be diligent and patient

Finally, once you’ve started the value investing process (meaning, you’ve bought stocks or shares in a particular company and are now active in the stock market), you have to have the patience to reap your rewards. Most likely, you bought your shares at prices below the true value of the company. Therefore, you will have to wait a bit to see the dividends from this investment. In addition, you must be diligent in watching the market and evaluating the value of your investments.