Value Investing: How to Find Undervalued Stocks in Malaysia
•By Mahersaham Team
Artikel ini juga tersedia dalam Bahasa Melayu
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The value investing strategy is one of the most established investment strategies in the market.
Every strategy employed must take risk management and risk tolerance into account.
Risk management does not guarantee that your investments will always be profitable.
However, by managing risk effectively, losses in your investment portfolio can be significantly reduced.
A wise investor must identify several fundamental factors before determining an effective investment strategy.
Among these criteria is understanding your financial position.
A lack of capital is one form of a problematic financial situation.
How do you determine whether you fall into this category?
The answer is straightforward. Your income should not only cover your cost of living — such as household expenses and debt repayments — but there should also be surplus funds available for other purposes.
Additionally, individuals who wish to invest need to know their level of affordability in line with their surplus income.
You certainly do not want to find yourself in a situation where you urgently need money, but it has all been invested!
The simple principle is: YOU DO NOT NEED A LOT OF MONEY TO START, BUT DO NOT START IF YOU CANNOT AFFORD IT!
Secondly, every investment must have clear goals.
The key question is: what do you WANT TO DO WITH THE RETURNS from your investment? Travel? Fund your children's education? Buy a luxury car or house?
Just imagine having heaps of money! Sounds wonderful, does it not?
Seek knowledge — at the very least, you should understand the basics rather than investing blindly by following the crowd.
Ask plenty of questions and read widely. Additionally, attend basic stock market classes that are organised for beginners.
Select stocks based on the intrinsic value of a company.
Buy stocks where the intrinsic value exceeds the current market price. Then hold the stock until the market price meets its intrinsic value, reflecting the true value of the company.
Free cash flow represents the profit earned by a company.
However, this technique is challenging as it is difficult to predict a company's future cash flow accurately.
Therefore, it is better to invest in companies that are consistent and have sound management from a fundamental perspective.
Good or bad news about a company can cause an overreaction in the market price that is not aligned with the company's long-term fundamentals.
Do not be easily swayed by news about a company when you, as an investor who has done your research, understand the business better than most!
Buying shares for the long term can certainly be disappointing if the company's performance is lacklustre.
The approach is simple: "DO NOT FOLLOW THE HERD" — do not buy when everyone is selling, and do not sell when everyone is buying.
Focus on the true value of the business that can generate profits.
Additionally, continue conducting in-depth research on the company.
Successful investing begins with a solid foundation of knowledge.
Investment Basics:
Download our free ebook for a comprehensive guide.
Open a CDS Account:
Ready to begin? Open a CDS account today.
Value investing is a strategy of buying stocks that are trading below their intrinsic value. Value investors analyse a company's fundamentals — revenue, cash flow, and assets — and buy when the market price is lower than the true value, then hold for the long term.
Warren Buffett is the most renowned value investor in the world. He buys shares in companies with strong fundamentals at reasonable prices and holds them for the long term. Benjamin Graham, Buffett's mentor, is regarded as the father of value investing and authored the classic book The Intelligent Investor.
Investors can use ratios such as Price-to-Earnings (P/E), Price-to-Book (P/B), and Discounted Cash Flow (DCF) to assess whether a stock is trading below its intrinsic value. Compare these ratios with industry averages and the company's historical records for a clearer picture.
The primary risk is a value trap — a stock that appears cheap but is actually inexpensive for valid reasons (declining business, high debt, or a dying industry). Investors must ensure the stock is cheap due to temporary market sentiment, not because of permanent fundamental problems.
Value investing teaches us the importance of buying quality businesses at reasonable prices — rather than merely chasing popular stocks or following market trends blindly.
Open a CDS account to start investing in value stocks on Bursa Malaysia using the value investing strategy.
Download our free stock market ebook to understand the fundamentals of analysis before you begin investing.
Further reading: