Value Picking vs Income Investing
by Admin on Nov.21, 2009, under Uncategorized
Dividend investing and Value investing are two different ways to approach the stock market. Value investing attempts to find strong stocks that are simply undervalued. The other involves buying stocks that are consistently paying off an income.
Which is the most profitable? Well each strategy has one big weakness and one big strength.
Investing for value is theory that undervalued companies who are fundamentally strong should do well in the long term. And the long term results of this method prove that it works. Companies that have excellent fundamentals will ususally beat average stock market return over the long term.
That means looking at things such as the PE ratio and the price to book ratio are very important ways of measuring how well a company will do in the long term.
However there is one big disadvantage to value investing. Investing for value is a very long term approach; you may have to hold a stock for 20 years or more to see any real kind of return off of that equity.
The real benefit of buying high dividend paying stocks is that you are able to see some profits once you get into the stock, without waiting many years. Because of the dividends they produce some stock can be very profitable even if they do not appreciate.
However dividend investing has one big pitfall of its own, it takes a lot of money to make money.
That is why the best long term strategy is probably not to simply buy a value stock or a dividend stock, but to combine the two. As the stock grows over time so does the dividend and therefore the cash flow can continue to grow.
This is a really hands off way to make a living from the stock market, but it does take a while and a lot of savings to get it to work.
