Value investing may seem hard to practice, yet the principles are simple. What is the secret to value investing? One could say the secret is time.
If you understand a company's worth and how much money it can earn, you may have a value that you feel is fair. Problem is, the company's share price may be above it currently.
Over time the market may give you a chance to pick up the stock at a discount during a sell-off, like the GFC.
Previously, I wrote about six big mistakes investors make. One of them is attempting to time the market, getting in or out at high and low points rather than staying in for the long term.
When you practice value investing, time is on your side.
- estimate your own value (do your own homework)
- buy dollar bills for 70 cents (buy at big discounts if possible)
- be patient until the share price approaches your value
Here are two companies that may be showing value after coming down in price in recent months.
Rio Tinto Limited (ASX: RIO), the iron ore mining giant, has suffered through months of falling iron ore prices in an industry many have put in the "too hard" box. As the lowest-cost producer in the industry, recent cost cutting may get its operating production cost under $20 a tonne. That gives Rio a better margin spread. If iron ore prices ever pick up again, its wider margins will attract investors and the stock should jump.
Another one is Carsales.Com Ltd (ASX: CAR). This company operates Australia's number one car search and sales website carsales.com. It has a wide gap in market share between itself and competitors like carsguide.com.au. Carsales.com is building a network of similar car sales websites across Asia and in Brazil. In the short term, these investments weigh on earnings growth, so the share price is trailing down. But not for long I would estimate. The overseas investments will pay off over several years and revenue and earnings will continue upward.
