So what is the best beginner stock market investing strategy for investing your money? Now most people think that Value Investing is simply buying cheap stocks. Earnings Power Value (EPV) is an estimate of stock valuation that puts a value of a company from its current operations using normalized earnings. This is no different when it comes to projecting the future cash flow of a business when picking stocks.
Typically growth stocks have high price earnings ratio and a low (even zero) dividend yield. This value is what the investor uses to compare with the security’s current market price. One of the important concepts mentioned early in the book is to invest in the stock market and use the power of compounding.
Even though technical analysis is not beneficial in a way to long term investors, i still believe its important to keep an open mind when it comes to investing and to read and learn as much as possible. A defensive investor is a passive investor who does not spend much time analyzing companies and picking his investment opportunities.
They pay careful attention to the times when stocks are under-priced. When he combined their philosophies with Graham’s, he arrived at an investment strategy that has served him well over the past five decades. The real key to become a smart value investor is always to initially filter out companies that will not be a suitable match and tend to be not high-quality value investing investments.
Coupled with Keynes’ notion of intimately understanding a company’s business model, Buffett was at last able to do away with Graham’s need to diversify over hundreds of stocks. Correspondingly, opposite characteristics – a high ratio of price to book value, a high price-earnings ratio, and a low dividend yield – are in no way inconsistent with a “value” purchase.