This is a term coined by Benjamin Graham in his 1949 book, ‘The Intelligent Investor'.
Basically, investors look at two prices when valuing shares.
What the share price should be according to the books.
And what the market (buyers and sellers) value the share price.
Sometimes, these two prices are way off…
In fact, the market's price is valued by the sentiment of the global markets. When the major indices are down, the share prices tend to follow.
And so anecdotally, what is Mr Market going to price the share or market today.
In this article, we're going to learn how to not base our buy decisions on our irrational moods and rather on what the fundamentals are saying…
Quick-Start Guide to Crypto + 3 Coins to Buy
If you haven't yet taken your first step in this surging market, there's never been a better time to do it. Because we have identified three particular cryptos that could rocket.
None of them are Bitcoin.
These are tiny, under-the-radar names. All three picks are priced UNDER $10.
But the profit potential is incredible. It's never been easier to take your shot at huge returns.
How can Mr. Market’s feelings fluctuate so quickly?
Rather than taking an unemotional approach to business highs and lows, Mr. Market reacts strongly to the slightest bit of news.
Whether Elon Musk tweets something, Biden stumbles on his words, or when investors are worried with the current wars going on.
It’s up to us investors to take advantage of Mr Market’s over-reactions.
You can buy from Mr. Market when he’s feeling overly pessimistic and sell to Mr. Market when he’s feeling unjustifiably euphoric. And that’s because of one simple important metric…
I’m talking about the NAV…
Not only is this one of the easiest ways to trade the markets, it’s so quick you could have ‘pick-pocketed’ your first profit in the short time it’s taken you to read this far!
As soon as I spot an opportunity, I’ll slide open my mobile and text you the details of a trade idea that will take no more than a couple of minutes to action. (I’ll show you how quick it is in a moment.)
Really, this isn’t one of those things that are quick if you’ve been doing it for years but takes ages if you’re just starting out...
How to identify this the “true value” of a share price
One simple way is to calculate a company’s net asset value (NAV)
And this will help you determine whether a share or market is worth buying, regardless of what Mr Market is saying…
This is what one of the greatest investors of all time did when he chose what to buy… In fact, it was this simple ratio of assets – liabilities/debt divided by the number of outstanding shares, that Ben Graham used to identify the true value of a company irrespective of how the market priced it!
And depending on the value of this number, it highlighted a unique situation in a company’s share price…
Something Ben Graham coined, The “Margin of Safety”. And a concept Warren Buffett believes is one of the cornerstones of investing!
Simply, it is the difference between the real value of the business and the price at which it’s trading.
Today there are amazing companies trading below their NAV and they’ve grown profits and cash flows – during the Pandemic.
These are the type of stocks that could make BIG money in 2021.
In fact, value stocks have outperformed growth so far in 2021 – And this is only the beginning.
See you next week.
Managing Editor, The South African Investor