Introduction to Value Stocks & Value Investing for Kids and Teens
This video explains the concept of Value Stocks and Value Investing in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about Value Stocks and Value Investing, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.
Suitable for students from grade levels:
- Elementary School
- Middle School
- High School
The topics covered are:
- What are value stocks
- What is value investing
- Characteristics of value stocks / how to identify if a company is undervalued
- Traits of value investors
- When to use value investing strategy
- Is value investing strategy right for you / How to become a value investor
What are value stocks?
Value stocks are stocks that appear to be underpriced compared to how well the company is doing in terms of sales and earnings.
They could be trading at a discount compared to other companies in their industry, likely due to some recent events or market perception.
Berkshire Hathaway, Johnson and Johnson, and Proctor and Gamble are commonly considered to be value stocks.
What is value investing?
Value investing is an investment strategy where people invest in stocks they think are undervalued and therefore feel like they are getting a bargain. Value investors buy such value stocks, and sell them for a profit after the market increases the stock price to reflect the company’s real value, also called its intrinsic value.
However, like all investing strategies, there is risk involved and value investing doesn’t always result in a profit.
What are some characteristics of value stocks? How do I figure out if a company is undervalued?
A company’s fundamentals are also key in deciding if it is truly a value stock or is just under performing. If the company has good fundamentals – like high sales and profit, high dividend payouts, good historic growth, low competition, and good management, it is usually considered a value stock.
What are some traits of value investors?
Usually, value investors don’t follow the herd. If many people are buying a particular stock, then value investors might sell or hold the stock.
On the other hand, if people are selling some company’s stock, value investors might see this as an opportunity to buy the stock.
When does value investing make sense?
Is value investing a good strategy for me? How can I become a value investor?
Finding and investing in stocks that are undervalued is not easy. Although it is definitely possible to find a few good undervalued stocks, you need to invest in many undervalued stocks if you want a well-diversified portfolio.
A better way to do that is through a Mutual Fund that focuses on value investing. This way, you let the fund manager pick the right stocks – without you having to do the hard work.
But actively managed mutual funds can charge high fees which significantly eat into your returns. Because of this, investing using a different strategy – like dollar cost averaging with an S&P 500 based index fund – is usually better than value investing through a mutual fund.