Value investing is an often overlooked method of investing. Investors tend to buy stocks that are hot or being recommended by expert analysts. This can be dangerous because you are likely paying a premium for that hot stock. But with value investing you are looking for stocks that are selling at a discount of their real value or buying at a price that you know will be far more expensive in the future.

Value investing is based on speculation more than anything. However, value investing is the surest way to value investing is the surest way to get rich in the stock market. Using fundamental analysis, less math and more tangible information an investor is able to pick out which stocks are the most undervalued. Keep in mind though value investing does require quite a bit of homework.

These may not be the sexy stocks, often passed around at water cooler chats or the front pages of Fool.com and TheStreet.com but value stocks are an integral portion of a diversified portfolio. Most importantly a youthful investor has time on their side to make up for any possible losses (and there will be some) attributed to inaccurately picked value stocks.

Use these 5 Tips to get started in value Investing:

1. Common Sense is King – The first tool in value investing is your common sense. Value investing often requires the investor to think about the stock and what they know about it. Why do you consider a particular stock a value investment? What are your reasons for it to go up? More importantly list the reasons you expect it to fail.

2. Look at the Future – Often in searching for value stocks investors like to try to predict the future trends of the market. Rather than guessing though or deciding what we want the future to hold, we must intelligently decide what trends are leading to. It is important NOT to catch wind of things as they are going up though. Value investing is no longer value investing when everyone sees it as a value and as such has bid up the price of the stock beyond it being a value buy anymore.

3. Look for Patents and Assets – Certain distressed companies or companies struggling to meet their budget and make profit are perfect candidates. These companies have potential for upside due to a powerful patent they hold in the industry, continually allowing them royalties. Similarly if they have a large infrastructure and established edge like a railroad company, they are more likely to be bought up than go under. Techs and industrials often shine here.

4. Change in Management – A change in management can really brighten or ruin things for a potential value stock. If you like a particular company’s management, one that has a solid success record of turning things around or reinventing themselves than you know you are likely with a winning stock pick. Familiarly, you may know of a company with an excellent patent or asset like a brand name that is deeply discounted because of poor management. Watch trends and buy when new management comes along. Your value stock can hit big!

5. Remember the Name – I like brand name marketability first and foremost. Names like Coca Cola do not die over night. Investing in distressed companies or even dying companies with excellent names that are part of our daily language are extremely valuable. That said, avoid names that have become tainted due to scandal, mismanagement or poor products.

Getting Started in Value Investing

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