It is very easy for most of the infant stock investors in the stock market and amateurs to misunderstand the concept of the value investing. There is more than ninety per cent of the investors do go wrong misunderstanding the value of investing.
The essential factor to consider in the value investing is the PE ratio of the companies. There are common perceptions by even the professionals, who advise the new traders over the media. There are mainly two misconceptions about the value of investing in the people. When the PE ratio is very high, most of the people conceive that the company is costly and in the other cases, when the PE ratio of the company is very less, it is also considered that the company is cheap, regarding its brand. Sometimes the media makes misinterpretations and sometimes, even the professionals from the stock market also do convey wrong messages to the beginners or the infant shareholders.
For example, if we consider the reputed and branded company, like Infosys, we can relate many of the facts that we discussed above. In 2001, the PE ratio of Infosys was 60. However, it has grown to even to 1000 per cent returns in just one and half decades of duration. So, is it a particular factor that investing in Infosys could be a mistake or wrong decision?
Another misconception regarding the value investing is that one can get some shares if the price of the shares is less, or less than 100 INR, instead of investing in the stocks that value more, in thousands. Beginners may think that if the price of the shares is just 50 INR, one can buy two hundred shares for 10,000 INR. But consider another vital fact here. MRF share price was about 2,000 in the year, 2008. But now in 2015, it is more than 20,000. So, is investing in the shares that have more price, a wrong decision? Not. Though the number of shares that we hold in our hands is very less, the brand value and consistent performance of the company are essential factors to consider, and so it is to be understood that the price of the share does not matter when the company is reliable and trustworthy. MRF stands to be one of the essential company in the respective industry with Sachin as an ambassador with very fewer debts and profits growing consistently for the last ten years at least.
These are the two major misconceptions that the amateurs and beginners of the stock market carry when they initiate their hard-earned money in the equity markets. When these wrong conceptions are overcome, one can turn into the right direction, and the probability of choosing the right company can be better and so the returns from the shares. Finally, in a nutshell, the value investing is nothing but investing the amount of hard-earned money in the right company without being carried away by the wrong conceptions and assumptions.