Buying a great stock at discounted price is the secret to profitable stock investment performance by Warren Buffet. Let see, why Warren Buffet keeps himself very busy when there are so many cheap stocks available in the stock market:
Reduce Risk
Share price will most likely arrive at the support level when it is cheap by valuation. Therefore, the downward pressure or the probability for the stock price to drop further is less. However, this may not hold true in bear market as the investors' sentiments in general are very weak. Nevertheless, you can still find great stocks at ridiculously cheap price during recession or market correction.
Superb Return
Buying the same stock at different price means a whole lot of difference when it comes to annual return. Although the stock price had reached $10 after 10 years, investor who bought it for $1 will have 26% compounded annual return while another investor who bought the same stock in the same year but pay it for $2 will only get 17. 5% compounded return.
Fewer Competitors
A stock become so cheap in valuation can be due to external factors or something that is happening in the company itself that most investors are not comfortable with. Unless the fundamental values changed, the impact can either be minimal or no effect at all. As there is less demand than its supply, the share price will drop to an attractive level that you can afford to buy more than before.
Though there is no guarantee that the share price will bounce back in near future, great companies will definitely come out bigger and stronger from any economic turbulent. Therefore, it is your job to understand how to value a stock; and one way to do it is by calculating its intrinsic value.
You can learn how to calculating safety stock. Find out how you can get the same return or even better after learning how to calculate intrinsic value and determine it's margin of safety in inventory skills.
Reduce Risk
Share price will most likely arrive at the support level when it is cheap by valuation. Therefore, the downward pressure or the probability for the stock price to drop further is less. However, this may not hold true in bear market as the investors' sentiments in general are very weak. Nevertheless, you can still find great stocks at ridiculously cheap price during recession or market correction.
Superb Return
Buying the same stock at different price means a whole lot of difference when it comes to annual return. Although the stock price had reached $10 after 10 years, investor who bought it for $1 will have 26% compounded annual return while another investor who bought the same stock in the same year but pay it for $2 will only get 17. 5% compounded return.
Fewer Competitors
A stock become so cheap in valuation can be due to external factors or something that is happening in the company itself that most investors are not comfortable with. Unless the fundamental values changed, the impact can either be minimal or no effect at all. As there is less demand than its supply, the share price will drop to an attractive level that you can afford to buy more than before.
Though there is no guarantee that the share price will bounce back in near future, great companies will definitely come out bigger and stronger from any economic turbulent. Therefore, it is your job to understand how to value a stock; and one way to do it is by calculating its intrinsic value.
You can learn how to calculating safety stock. Find out how you can get the same return or even better after learning how to calculate intrinsic value and determine it's margin of safety in inventory skills.
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