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We believe the only way to invest in the stock market is through research to uncover quality companies with bright prospects, valuing those companies, and only buying when their market price is materially below Intrinsic Value.
Our investing approach comes under the mantle of “Value Investing” and the man that has shaped many of our beliefs on how to invest is Warren Buffett. Numerous books have been written on Warren Buffett – some better than others – and we recommend to any investor to take the time to read at least a few of those books.
We believe that research is required – both quantitative and qualitative – before deciding to buy a stock.
To narrow the search from the thousands of American listed companies, quantitative analysis can be conducted using figures found in the company’s financial reports. Amongst other factors, we are interested in companies that can achieve a consistently high Return on Equity (ROE) employing little or no debt. ROE is the measure of a company’s profitability – how many dollars of capital are needed in order to make the net earnings. No figure is more important than ROE to a Value Investor. See these 2 articles "Earnings Per Share & Return on Equity" and "The Fallacy of the PE Ratio as a Measure of Value" to further understand our philosophy on, and the ins and outs of ROE.
Once a manageable number of quality companies have been uncovered, qualitative analysis can be conducted on each company. This investigation focuses in particular on the future prospects of the company. What are the drivers for future revenue growth? Where do they sit in the competitive landscape? Is management trustworthy, and does their capital management strategies have the best interest of the owners (shareholders) in mind? What is the regulatory climate surrounding the company, and what macro-economic forces are acting on the company?
Whereas the quantitative analysis looks more at past performance, qualitative analysis is conducted to ascertain the likely future performance.
We are very proud of the fact that Intrinsic-Valuation.com gives individual investors the tools and resources to discover quality companies with exceptional past performance and promising future performance that are trading at a large Margin of Safety. We feel that identifying great investment opportunities is not meant to be complicated, so long as rational judgment is employed. To quote Warren Buffett:
"I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over."
See our article "Discipline & Value Investing" to understand more on our philosophy of employing rational, disciplined judgement in investing in the stock-market.
The information provided within Intrinsic-Valuation.com is well researched and completely unbiased, and when properly used we believe it can help to grow huge long term wealth for its subscribers.
Value investing involves calculating the value of a stock based on its past performance and projections of its future performance, and buying the stock when it is trading at a discount to the calculated value.
An important aspect of Value Investing is paying less for a stock than its intrinsic worth, but Value Investing is far more than that. Value investing also involves undertaking research into companies to measure their past economic performance and determine their likely future performance. Ultimately we are looking for extraordinary companies that demonstrate a sustainable competitive advantage over their peers. Only the highest quality businesses warrant consideration. To read further on competitive advantage, see our article "Competitive Advantage Sources".
When an individual buys stock in a company, they are buying a (small) part of that company. A Value Investor conducts the same amount of research prior to purchasing a small part of a business as one would buying 100% of a business. If you were to purchase outright a local shoe shop for example, you would no doubt conduct research to establish the past performance and likely future performance of that shoe shop prior to purchase. We suggest that similar analysis is required even when you are buying just a small piece of a company via the stockmarket. We believe handing over money to buy shares in a company via the stock market without conducting research into the company or calculating its intrinsic worth is pure speculation.
Value Investors rely on the premise that, to quote Warren Buffett, "If a business does well, the stock eventually follows." We aim to invest only in extraordinary companies whose Intrinsic Value will increase over time.
Importantly, we also believe that Value Investing is fun and despite what some people would have you believe, it isn’t meant to be complicated. Two of Warren Buffett quotes that we take on board in this regard are:
“There seems to be some perverse human characteristic that likes to make easy things difficult,”
“The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.”
We are proud to say that you will find Intrinsic-Valuation.com very user friendly, rational, and uncluttered. You won’t find advertising, marketing, technical analysis, pop-ups, macroeconomic noise, talking heads, or any “hot tips”. We, along with most Value Investors, find researching quality companies with the intent on finding an extraordinary investment opportunity interesting and enjoyable, and we hope you will too!
Complex calculations are certainly not required. Warren Buffett once quipped that if calculus were required in analyzing stocks he would have to go back to delivering papers (a job he had when he was a boy).
An understanding of financial terms is required, but this doesn’t take long to become familiar with, and our glossary provides a great starting point.