 |
 |
|
You are here: Stocks Investing Guide >
Mutual Funds > Value Stocks and Growth |
|
|
Value Stocks (Boring) and Growth (Scary)
|
Actually, I don't think
the concept of "value" in the stock market it
boring at all. It's boring in its intrinsic
historical dependability, like a good husband who
comes home at night neither drunk nor obnoxious.
You tend to get what you pay for with "value", in
that while value stocks earn a decent profit, they
don't set the world on fire, either.
At least, that's the expectation. In the investing
pyramid used by many brokers to explain to new
clients why most of their money shouldn't be
invested in the world's first truffle farming
endeavor, value stocks make up the lion's share of
the pyramid.
|
|
One definition of value
stocks is that their P/E (price to earning) ratios are
below the average for other companies of that
type. That makes the stock a "good buy" because,
theoretically, the stock is actually worth the average,
but currently costs less than it should assuming the
company has the average book value. In general, this is
a good thing; like discovering any good product that's
cheaper because no one knows about it yet. In
particular, this can get you into trouble, because one
person's best "value" stock is another person's junk.
Value stocks are a place where things like online
investing newsletters can cause trouble. You will see
articles declaring that the current top pick isn't Sears
or Avon, but an Indonesian talc mining operation nobody
ever heard of. The market calculator on the page will be
all too handy when you want to figure out what the stock
will climb to after you've made your purchase. You'll
even be able to chart the putative rise of your stock in
a bright red line as it outperforms the market by fifty
percent. But remember, with all the hoopla, a million
other people got this newsletter, too, and there's
nothing better for a pump and dump scheme than declaring
something a value stock.
You may read about par or no par stocks. A stock at par
value is its face or nominal value, or what it is worth
as bought or sold. Most stocks are issued with a very
low par value, because that limits the company's
liability.
If a value stock is actually a small cap that you have
heard of, and if the price seems reasonable and the
prospects look good, you may have found something worth
buying. After all, some companies go on to do big
things, and their stock prices rise, and a patient
investor can make a lot of money if it's a good pick for
a good reason.
By all means, buy a value stock, but not if it costs a
penny or even a dollar and the average is $10. Not if
you haven't heard of the company, can't get any
information on it. Never, ever if someone tries to
convince you to buy it!
|
|
|
 |
 |
How to stick to a household budget
and have extra
money for investing
1. Customize your budget with your current needs, wants and future goals in mind.
2. Try to think if your budgeting plan as a "spending" plan rather than penny pitching.
3. Sit down and rationally discuss budget goals and spending limits with your spouse. You are bound to disagree somethere, but it important to take the time to find common ground.
|
|
 |
|
 |
|
Stocks & Investing Advice
|
|
|
|
|
|
|
