Investing in a stock market means different things to distinctive investors. Some focus on enjoying capital appreciation through aggressive and growth companies. On the other hand, a few plan to enjoy a regular income through dividends. Kavan Choksi mentions that there are also investors who keep an eye out for undervalued underrated companies that could see a boom in the future, and for them, investing in value stocks would be a good choice. During a turbulent economic situation, like a recession, prices of even major companies may go really down, providing a great investment opportunity to value investors. After all, the stock prices of these companies do not hamper their fundaments or potential.
Kavan Choksi shares how value stocks can present an advantageous prospect
Value stock investing is based on the concept that the market prices of the undervalued stocks would go up in the future, enabling the investors to earn considerable profits in the future. A value investor has to be patient enough to wait and observe the potential value stocks trading at lower prices to benefit from them in the future.
The financial markets witnessed a fall globally in March 2020 due to the Covid-19 pandemic. A lot of investors got spooked due to the turbulent market situations, which resulted in a sharp sell-off. Value investors, however, saw an opportunity even during those volatile times. In fact, there were several opportunities in almost every sector, and those stocks were identified on the basis of their valuation. The companies that were profitable yet undervalued caught the eye of the investors, and got preferred positions in their portfolio. The returns most of these investors enjoyed after a year on those stocks were pretty high, as the market gradually began to climb up.
There are many investors who purchase a stock just because everyone else is buying it or as it is experiencing a bullish trend. This is a trait of retail investors who get influenced by market sentiments. Having such an approach is fine from a short term perspective, but it may not be the right play for investors with a long term perspective. Value investing is essentially the opposite of trading based on market sentiments. Its overall concept is fairly simple, which is to purchase quality stocks when they are available at a lower valuation, such as during recessions and other turbulent market scenarios.
As per Kavan Choksi, value investing can be a good way to make sure that one ultimately gets their money’s worth. While investors can forecast the performance and growth of a stock to an extent, they do not have any control over future events. For example, another pandemic could break out, or countries can go to war, and so on. All of these factors impact the entire economy, and such events are outside the scope of any investor. The only thing they can actually control is their entry and exit prices. An investor cannot always be certain whether an investment is going to turn out to be good or bad, but with proper research and analysis, they can surely be certain about its true worth, which makes value investing quite a smart prospect.