These are the three major advantages of value investing

Why choose value investing over other types of equity strategies?

Let’s back up a bit and explain what value investing actually is.

It is a method where you yourself select the companies that you want to invest in. You make sure that you pay a fair price for the company in relation to what the share price is.

Value investors do not believe that the market is efficient, therefore they look very closely at the company and critically select what they want to invest in.

They look, among other things, on what the company should be worth and holds it up against the rate at which it trades in the market.

But it’s not just a matter of price.

For the type of value investors who follow Warren Buffett, it is also about looking at the quality of the company itself and whether it is being run properly.

What is the advantage of the method?

There are many, but the three most important are:

1. The high return

Many of the well-known value investors get an average return on their shares of 15-20 per cent. per year.

If you do the job properly, you also have the opportunity to get a really good return.

Having said that, I must of course just point out that I can never promise you exactly how high a return you will get, as I do not know what you are investing in and how it will develop.

The only thing I can say is that the method works for many people.

2. Security in the market declines

Value investors look closely at what they invest in and what it is worth.

As Warren Buffett says: it’s like buying 1 dollar for 50 cents.

How does value investing assess what a company is worth? Among other things. by looking at how much money they make now and how much they expect to make in the future.

Or by looking at the balance sheet and seeing what assets there are in the company that could be sold right now.

When the stock market crashes, value investors are very active in investing.

You can say that this is where they really get blood on their teeth. Should the price of some of their shares fall, they take it easy and perhaps buy a few more.

Value investors are quite calm when the market is turbulent because they know what they are doing.

3. Ethical investment

When you look as thoroughly at each investment as a value investor who follows in the footsteps of Warren Buffett does, you know exactly what you are investing in.

This means that you are absolutely sure that you are investing according to your values.

You’re not going to invest in something that you don’t want to support, which you e.g. could come to if you invest through funds and ETFs.

If you ask me, there is no more ethical way to invest.

Many other benefits

I could make a long list of other benefits.

Eg. you become part of a movement with many fantastic people, whom you e.g. can meet if you go to the annual meeting of Berkshire Hathaway in Omaha.

I could also tell you that it is an interesting hobby and you will never get bored. I look forward to every time the accounts come from the wonderful companies on my wish list (or companies I have already invested in).

If I have a moment to myself, it is usually something related to value investing, which takes me out and makes me happy.

Some read a crime novel or solve a crossword puzzle when they are in the cottage. For me, the market is as exciting as a crime story – and at the same time, it is intellectually stimulating to follow.

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