How to Write your Fundamental Value Investing Plan

Introduction

Understanding the principles of value investing is crucial in the world of investments. In this guide, we will explore the basics of value investing and how to create a tailored investment plan for value stocks. This plan will help you build a watchlist of undervalued stocks, determine entry and exit points, and implement effective money management techniques.

The Importance of an Investment Plan

An investment plan brings clarity to your investment process. It guides your decision-making and reminds you of the necessary routines to execute your plan effectively.

Objective

The objective of this investment plan is to invest in fundamentally strong stocks that are undervalued compared to their intrinsic value.

Criteria for the Watchlist

1. Use valuation ratios and other metrics to identify stocks with attractive valuations.
2. Apply technical analysis to determine stable price levels for potential investment.
3. Estimate intrinsic value and margin of safety for shortlisted stocks.

By the end of this process, you will have a watchlist of stocks with a sufficient margin of safety to monitor for future entry opportunities.

Sequence of Analysis

When identifying companies that meet both fundamental and technical criteria, consider the potential for finding stocks with a significant margin of safety. Here is a suggested sequence of analysis:

1. Utilize an online stock screener tool to search for stocks meeting the following fundamental criteria:

• P/E ratio of 20 or less, indicating favorable earnings multiples.
• P/S ratio of 2.0 or lower, reflecting attractive sales valuation.
• P/B ratio of 1.0 or lower, indicating undervalued equity.

To refine your results, consider additional criteria:

• ROE of 10% or more, showcasing strong profitability.
• Debt-to-capital ratio of 25% or less, indicating a healthy capital structure.
• Volume of 250,000 or more, ensuring sufficient liquidity.

2. (Optional) After filtering for fundamental criteria, consider stocks exhibiting a technical base pattern.

3. If the stocks meet both fundamental and technical criteria, use an Intrinsic Value Calculator to estimate intrinsic value and margin of safety. Consider adding stocks with a margin of safety of 25% or higher to your watchlist.

Conclusion

Creating an investment plan focused on fundamental value investing is a crucial step toward financial success. By following the outlined criteria and analysis sequence, you can identify undervalued stocks with long-term growth potential. Remember to maintain discipline, conduct thorough research, and regularly monitor your portfolio. Stay committed to your investment plan, and it will guide you on the path to financial prosperity.