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Friday, May 25, 2007

Deep Value Investing Strategy

Deep value investing strategy is an extreme value investing strategy, in which the investors invest in very low priced stocks. Usually these stocks are of sunset companies, the companies on which other traders show a little or no interest.

Deep value investors find suitable companies using complex analysis which include price to book ratios and price to earnings ratios. Usually the price to book ratio of these companies will be below 1.0 and price to earnings ratio will be seven or less. Deep value investors invest in these companies simply because they trust those companies. They believes/knows that these companies have a brighter future and the stock price will certainly go up.

Deep value investing includes substantial risks. The advantages of deep value investing strategy include buying of good company stocks at low prices, chance for more profit, etc. The downsides include loss from price falling, difficulty in selling stocks, etc. Deep value investors must be extreme careful with their investing strategy and money management. It is always good to diversify your investments either in different value stocks or in value stocks and stable frequently traded stocks (growth stocks). Deep value strategy can also be used for short-term profits, not day trading or swing trading profits; if the stock is a some what frequently traded one.

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