If you want to start investing in stocks you have probably heard of value investing. This time-tested investment strategy has been used by countless successful investors to create wealth over time, by buying businesses under their intrinsic value. But how long does it take to learn value investing? Is it difficult?
In this article we will answer some of the most common questions about value investing, and what you need to know before you embark on your value investing journey.
How long does it take to learn about investing?
Learning how to invest following a value investing strategy will take at least a year. The reason is that in order to start value investing you need to be comfortable analyzing and researching stocks using fundamental analysis.
To do this, you will need to have a strong finance and accounting knowledge, to be able to navigate through the company’s financials, and pick the right stocks. Depending on your previous experience with finance and accounting it might even take you less than 6 months to be comfortable analyzing, researching, and picking stocks.
However, for most retail investors that do not have a finance or accounting background, it will take more time to learn value investing.
What does it take to learn value investing?
In order to learn value investing you will have to dedicate a lot of time, especially if you do not have a solid accounting or finance background. The best approach to learning value investing is to take advantage of all of the resources you have at your disposal.
This includes watching videos, reading, and even researching stocks. Some of the best investors have been spreading gold nuggets about how to approach value investing for years and years.
There is an unlimited amount of extremely valuable videos online, where some of the best investors share their investment approaches.
You should also read the best fundamental analysis books to understand how stock research with a value investing approach is conducted.
If your knowledge of finance and accounting is very limited, there are ways to improve them. The best option by far is to take a free online course. For example, Coursera provides outstanding courses on different finance topics and accounting. This will allow you to understand some of the most basic terms.
While you are learning you can also start researching stocks and making your first investments. However, when you are just starting out, you should use a small portion of the money you have available, or you can even use a paper trading account, so you don’t have to risk your capital.
This will allow you to become a more experienced investor, and as you develop your investment skills, you should be able to start value investing with confidence.
How value investors pick stocks?
The way a value investor picks stocks varies depending on the investor, however, it all boils down to the same thing - trying to value the business.
Value investors will select a few stocks that look attractive based on different metrics. They might even use a stock screener to look for the most attractive stocks based on a combination of different financial ratios.
Once they have narrowed down a few stocks they will analyze each business using fundamental analysis. The goal is to try to determine the company’s valuation and whether the current stock price is under the intrinsic value of the stock.
Fundamental analysis of stocks involves reading through the company’s financial statements, to try to understand if the company is profitable or not. They will also look at the balance sheet, to understand whether the company has too much debt, or not.
By analyzing the company in detail, investors are able to attribute a certain estimate to the value of the entire business. Following a value investing approach they will invest in the stock if the price is considerably lower than the current stock price. This gives investors a margin of safety, in case their investment does not go as planned.
Why is value investing difficult?
Value investing is difficult because researching, picking, and investing in value stocks requires a lot of different skills, such as:
- Understand the industry they are investing in
- Knowledge of finance and accounting
- Research the company’s competitive landscape
- Analyze the company’s financials
- Valuation of the company
- Project future financial performance of the company
- Keep up with market news and updates
- Actively manage their portfolio
- Constant learning to become a better investor
Does value investing take a lot of time?
Yes, value investing can be extremely time-consuming, and the reason is that it is a long process to pick stocks. Initially, you need to narrow down your search and create a list of stocks that look attractive. Then you need to pick which ones are worthy of being researched.
It is impossible for a value investor to research all of the stocks that seem attractive, especially if you are trying to invest globally. The number of potentially attractive investments is far too large.
Once you have selected stocks to research you need to go through their financial reports, such as a 10-Q and 10-K. Most of these filings are 200 to 300 words long. Even if you do not read every single word that is in a 10-K it is important to go through them in detail to understand the company you are investing in.
You will also need to read news on the company, perhaps keeping track of news and even reading the earnings calls. Whenever you want to add another stock to the portfolio, you will need to repeat the whole process once again, and this is why value investing is extremely time-consuming.
The good news is that as you become a more experienced value investor it will take less time to analyze a company, and you will already know what to look for. This will make it faster to r
How do I learn value investing?
To start learning value investing you need to determine what is your current knowledge of the subject. If you know literally nothing about finance, accounting, or even investing, it is better to start with a few beginner books on investing.
If you already know how stocks work, then you should buy a few of the best value investing books, including The Intelligent Investor, and One Up On Wall Street.
You can also start watching some YouTube videos on the subject to learn even more. However, it is important to be careful when selecting which videos to watch and download. YouTube is filled with incredible content creators that are extremely knowledgeable about different topics, however, there are other YouTubers that might not teach you in the best way.
Although you will need to dedicate a lot of time to learning value investing it will definitely be worth it. Value investing is one of the safest ways to invest in the stock market, and it is historically proven to generate higher returns, than growth investing for example.
Remember that even some of the most experienced investors are constantly learning and improving, and it will take time for you to become a good value investor.