Saturday, 19 December 2015

THE SECRET TO BUILDING HIGH QUALITY LINKS

Screen Shot 2015-12-15 at 1.24.21 PM

Today I am doing a solo episode about link building. No matter what Google tries to do to devalue backlinks, they still remain an important factor in your ranking.
Getting high quality backlinks to your content is one of the more important factors is getting your content to rank. Buying links and acquiring links in shady ways is no way to go about this.
Today link building is a lot more like networking. In order to be effective, you have to do a little relationship building and digging, but the payoff can be well worth it.
In this episode of the Duct Tape Marketing podcast I talk about 3 of my favorite and not so well known ways to get links.
  1. Researching and pitching sites that link to competitors.
  2. Researching and pitching publishers of roundup style posts
  3. Building a link platform based on local strategic partners
I wrote in more depth on link building here if you would like to read as well as listen.
What you’ll learn if you give a listen:
  • 3 tactics for growing your backlink count
  • Tips to save time while link building
  • How to beat your competitors by finding where their links are coming from
  • How to find websites to be linking with
  • Why backlinking is a form of networking
If you’re interested in reading more about this topic, check out our content community page here. Our latest eBook – Online Optimization: Get the Most Out of Your Website and Content as well as our entire library of eBooks is available for download for community members. Best of all – it’s completely free.
This episode of the Duct Tape Marketing Podcast is sponsored by Inbound.org, an online hub where marketers go to get better. 

Tuesday, 1 December 2015

Starting an Online Business - Selecting Your Niche

How do ordinary people with little wealth in their background become wealthy?

Outside of a tiny number who become wealthy overnight thanks to a lottery win or they inherit a distant relative's fortune, for most of us there is only one avenue.

You start a business. What business? Well that depends on your current knowledge, your experience. previous job history, and perhaps your interests. Somewhere within that whole database of knowledge,  skills and contacts that sit within you, there is a potential business if you show enough desire to make it happen.


In the 21st Century we are blessed with new opportunities thanks to the incredible internet opportunities that now exist. In particular, if you decide to sell information or something else that is available in digital format, then you have an amazing chance to build something big with relatively little investment.

A digital product business means:


  • No need to go overseas to buy goods, import them back into the UK and then store them in a warehouse. That can take some serious money.
  • If you're making the product rather than selling someone else's, no need to pay a manufacturer for specialised tooling to build it and then commit to a massive minimum order quantity.
  • No need to pay for sales reps or spend the time 'on the road' selling (although that of course remains optional and may in some circumstances still work well)
  • A potential customer base that is instantly worldwide
  • The only equipment you need will be a decent computer and a broadband connection.
  • In most cases, the chance to receive payment in full as soon as the sale is made. So the business has positive cash flow as soon as sales occur.

The downside is almost a product of the upside. The relative ease of entry to the market means that there will be a crowded market and you need to be at the top of your game to distinguish yourself from the pack. 

What's more, with no or little face to face contact, it will be harder for a small unknown business to get traction and trust from your potential customers. There are however methods you can deploy to overcome this. Stay tuned for more on this.

So where do you begin? Well you need to be sure of your niche and a plan as to the specific or type of product you're going to sell. That may change as you begin your journey but you need to focus. 

The big 3 online information areas are:

1. Making Money Online inc 'how to' digital marketing products
2. Health and Fitness  inc weight loss, fitness training
3. Relationships  inc dating, counselling

Remember there are other large markets too. If you're not sure then use Google AdWord's Keyword Planner.

Quite simply you tap in a set of key words and Google will show you the average monthly search and the amount of competition assessed for that word. So in the print below you will see:


that the number of people searching for Make Money Online is 135,000 people worldwide on average with high competition. You should try other variations too to see how each possible keyword search compares. Using the same for 'dating' was 368,000 and for 'weight loss' was 246,000. Interestingly the number for the world's biggest participatory pastime, fishing, was also 246,000 but with low competition. So potentially a unexplored market for a massive interest of so many people. 'Football' came up with a search volume of 2.24 million - food for thought! Even more interesting perhaps - Facebook came up with a steady 3.76 billion with low competition. 

Only you will know what excites you but do go into selecting your area of business with care. This tool will give you really insightful data that previously would have required painstaking painful market research and without the degree of statistical accuracy.

It will give you the ability to properly assess how viable your business proposal actually is.

Andy Snowdon
The Online Oracle




Sunday, 15 November 2015

Twitter Ads Campaigns: A Simple Setup Guide


twitter ads
Twitter is a great marketing channel for driving traffic and generating leads. In fact42% of Twitter users follow brands or companies, which means if you’re not using Twitter for your business yet, you should learn how to integrate Twitter into your social media marketing strategy.
If you do already have a Twitter account set up for your business, you might consider supplementing your organic efforts with some of the paid promotional opportunities that Twitter offers. Using Twitter Ads is an easy way to get your tweets in front of larger audiences than just those who follow you, which is particularly useful if you’re looking to generate more new leads for your database. And you don’t necessarily have to spend a fortune on it, either -- Twitter ads can be effective even on a relatively small budget.
So, how do you get started? Let’s go ahead and walk through the four basic steps to setting up your Twitter ad campaigns, and how to decide on the best structure for your campaigns.

4 Steps to Set Up a Twitter Ads Campaign

Step 1: Choose Promoted Tweets vs. Promoted Accounts

The first decision you need to make when setting up your Twitter ads is whether you’d like to promote your tweets, or promote your Twitter account.
What’s the difference? Promoting tweets will allow your tweets to appear in users’ Twitter streams or in Twitter search results, whereas promoting your account will display your username under the “Who to Follow” section in users’ homepages.
Promoted Tweets vs. Promoted Account
How do I choose? If you’re simply looking to grow your follower base and build up your audience, Promoted Accounts is a good choice. However, if your primary goal is lead generation, you’ll definitely want to put your money toward Promoted Tweets. Why? Because promoting tweets instead of your account allows you to craft those tweets to promote your content and links to your landing pages, where these Twitter users can then convert on your offers and become leads. Promoted tweets give you a lot more flexibility in terms of the content you’re choosing to show to your audience, so when in doubt, I’d recommend selecting this option.

Step 2: Select Primary Targeting Criteria

The next step in setting up your campaign will be determining your targeting criteria. It’s important to customize your audience to be a good fit for your company and your message, and that way you’re only paying for clicks from folks who might have some interest in downloading your content or learning more about your product or service. A more targeted audience is more likely to help you generate qualified leads.
What are my options? You can target your campaigns by interests and followers, or by keywords (only if you’re promoting tweets, not accounts). Twitter now also has a Tailored Audiences feature, which gives you the option to target your website visitors or lists pulled from your database. 
What’s the difference? Targeting by interests and followers allows you to create a list of Twitter usernames, and then target users whose interests are similar to the interests of those users’ followers. A great use of this type of targeting is compiling a small list of the top influencers in your industry. For example, to promote HubSpot’s How to Use Twitter for Business ebook, I’ll want to target an audience of users interested in social media. Targeting by interests and followers allows me to say, “show these tweets to people who are like Mike Volpe’s, Social Media Examiner’s, and Social Media Today’s followers,” and then I’ve created a large audience that’s still tailored to the topic of my content.
With this targeting option, you can also add a list of interest categories -- so I could say, for example, “show these tweets to people interested in Marketing, Social Media, or Lead Generation.” Again, this creates a broad audience focused on the topic of the content or products you’re promoting.
Targeting by interests and followers
Targeting by keywords allows you to reach people that search, tweet about, or engage with specific keywords. You can also choose to have your tweets appear in either users’ timelines or in search results. The benefit of this type of targeting is that it helps you define a more qualified audience, since these people are actively looking for or engaging with those specific keywords that are relevant to your offer.
So if I’m promoting HubSpot’s How to Use Twitter for Business ebook, I might set up a keywords-based campaign with some related keywords, like this:
Targeting by keywords
Twitter also included a feature that recommends additional keywords to include in your campaign (just click on “Expand your reach”) so you can make sure you’re not missing out on any highly-searched relevant terms:
Expand your reach feature
Finally, targeting Tailored Audiences allows you to run retargeting campaigns through Twitter. You'll need to work with one of Twitter's ads partners to build audiences based on pixels on your site or by matching lists from your database. This option is a bit more complicated, so I'd recommend reading up on the details here.
Tailored Audiences
How do I choose? Targeting by interests and followers is best if you’re looking to get in front of new audiences, or if you’re looking to focus more on brand publicity. This option will yield a larger, less qualified audience. Targeting by keywords, on the other hand, is useful if you’re looking for users with potential product interest or purchase intent. This option will give you a smaller but more qualified audience.
Note: I’d recommend trying both types of targeting. Set up an A/B test where you have a campaign of each type with the same tweets, and see which performs better for you.. If you're looking to do more advanced retargeting, try Tailored Audiences.

Step 3: Choose From Additional Targeting Options

What are my options? Beyond targeting certain interests and keywords, you can also choose to target your audience by location, device, and gender.
How do I choose? You’ll want to target by location if you run a local business, or if you sell primarily to specific regions (whether that’s your city or North America).
Target by location
You can also select which devices you’d like your promoted tweets to be displayed on -- any combination of desktop and the various mobile devices. This is a great targeting option if your product or service caters more specifically to people on the go, or if your website visitors are most likely to convert on your offer when they’re in the office.
Target by device
Finally, if your product or service caters primarily to either males or females, you should take advantage of the gender targeting option.
Target by gender

Step 4: Create Your Tweets

This is the fun part! Once you’ve determined the structure of your campaigns and your target audience, go ahead and create the tweets you’d like to promote. You can either select from existing tweets in your account, or create new ones.
When crafting a new tweet, click on the eye icon to select delivery type -- standard (which will promote it immediately to your followers just like an organic tweet), or promoted-only (which will only promote it through your Twitter Ads campaign).
Create your promoted tweets
And there you have it! Simply assign your campaign a daily budget and a maximum spend limit, and set it live. Be sure to keep an eye on your campaigns as they run, and continue to optimize them for better results.


Monday, 9 November 2015

How to Get Online Training

One major reason why people don't succeed in establishing an online business is because they don't invest in their knowledge. Yet getting the right training can be tricky. I have reproduced below an extract from Why Online Businesses Fail. 


You can get the whole free report -===>just click here. 

You wouldn’t expect to set up as an accountant or lawyer and open your doors to the public without training, would you? Yet nevertheless people do exactly that on the internet. Acting blind in business is a sure way to fail. You need to invest in knowledge and continue to invest.

The good news is that there is no shortage of training courses out there. That is also the bad news. You need to pick carefully a course which is reasonably priced, be sure that the course leader practises what he preaches and runs a successful business. Ideally this will be a monthly subscription that you can cancel at any time if you make a mistake.

Ideally he / they will provide a combination of:

·        Webinars
·        Skype conferences one to one
·        Training videos on all of the required skill sets
·        DVDs on specific areas eg web building.
·        Technical Helpdesk.

One focusing on web building using WordPress and another on social media might give you the broad range of skills that you need initially.

You might find you use 2 or 3 tutors, as I did. You will also probably need to full in technical gaps by Googling questions – there is always an answer so just keep asking the question in a different way until you find it.

In essence I would say that the basic software tools which will see you through most challenges are:

·        MS Office (Word. Excel and PowerPoint)
·        WordPress and a couple of Plug ins such as Optimiser and SalesPagePlugIn
·        Photoshop Elements
·        Camtasia [not at the beginning]
·        Ashampoo (DVD burning) [optional]

The key strategies to adopt:

1.    Work out exactly what you need to get to the next stage, source it and then focus on that course.

2.    Make it practical – don’t just watch the video or read the pdf – actually DO IT. If it is teaching you how to build a website using WordPress then mirror it with your own site. If it suggests a plugin that needs paying for, pay for it and download and use it. You will get far more out of the course even if it takes you longer to complete.

3.    Avoid ‘white noise’ if you have signed on to other gurus they will be busy flogging you their training. Don’t be tempted whilst you are doing another course but simply make a note of that course to potentially follow up if it’s still necessary. Meanwhile continue to achieve your current objective acquiring the knowledge you felt was vital to move on with your business.

4.    Keep assessing vital gaps in knowledge to consider what knowledge is needed most next rather than clicking the very next email promotion that hits your inbox. You then ensure your purchases are properly thought out and controlled.
F
FTo see the whole of this free report ===>click here



by Andy Snowdon

author: Why Online Businesses Fail
   

Friday, 6 November 2015

Think and Grow Rich

Think and Grow Rich

I’m not one for long tracts of business psychology. I’ve seen a couple of surveys that state that people who spend long periods of time reading Business Self Help and other psychology books very rarely ever succeed in business.

BUT I finally read “Think and Grow Rich” by Napoleon Hill recently. Mainly because a couple of my mentors strongly suggested it.  The book wasn’t the most riveting read if I’m honest but I was pleasantly impressed with the sound perception that poured out of it.










www.quotesgram.com


It essentially comprises the thoughts of 500 men of great wealth who all built their fortunes from nothing. Hill assimilated these thoughts to discover the common denominators involved. These became known as the 13 steps to achieving wealth.
Today I will share those critical messages with you.

Step 1 - Desire

This is the heart beat! Desire underpins every action and plan. This is not about mere wishing but having almost an ache to achieve or attain. It is well defined and commits to a plan. So the key is to take your wants and turn them into desires. When you don’t you have the self-help syndrome I described above. Desire is the fuel to achieve and prosper. 
It is then translated into an action plan. The action plan is then ‘lived’ to reinforce the desire.
The 6 key steps to promote and harness Desire:

1.       Fix a definite amount of money you want
2.       Determine what you give in return
3.       Establish a definite date for this
4.       Create a definite plan – begin at once whether ready or not
5.       Create a clear statement as to flow of monies to achieve a financial forecast
6.       Read aloud twice a day – see the outcome as being NOW i.e. present tense.

Step 2 - Faith

This was the #2 step – the creation of a level of self-confidence which could be religious but not necessarily the case.  The success of great people is down to their mastery of their failures, which requires a huge degree of faith. Strength and wisdom is developed in individuals through temporary defeat.

That mastery of defeat is achieved by disciplining the mind to meet this head on by meeting it mentally before the occasion arrives.

Hill developed a self-confidence formula in five steps to be committed to memory:

1.       Demand of yourself persistent continuous work to achieve attainment
2.       Concentrate thoughts for 30 minutes daily to who you intend to become
3.       Devote 10 mins daily to demand self confidence
4.       Write your chief aim down and never stop trying to achieve this
5.       Succeed by leadership and elimination of all draining emotions – envy, jealousy, selfishness and cynicism.


Step 3  - Auto – Suggestion

This is a more difficult concept to grasp. We tend to be more readily accepting of the terms of (positive) affirmations or visualisations. It’s the same thing! You see riches in your thoughts and those affirmations drive you on to your goals.

“If you do not see great riches in your imagination, you will never see them in your bank balance.” (Hill). If you desire to have money, see yourself in possession of that money.

It becomes therefore a technique in order to allow desire and faith to be made more concrete in their role. Hill suggests repeating the strategy or mission statement aloud morning and evening, while visualizing the goal in mind. Use the steps above in a formulaic manner to programme your sub-conscious mind.

Hill doesn’t stop there though. Fully recognising that nothing is achieved without hard work, so he emphasised that you include the work involved as part of that vision.

Auto-suggestion is effectively the continuous repeating and affirmation in blocks of time on a daily basis to re-programme your mind to achieve the desired outcome.

To access the power of auto suggestion, go into some quiet spot, perhaps in bed at night. Close your eyes and repeat aloud so you may hear your own words a careful reaffirmation of whatever your goal happens to be.

Step 4 - Specialised Knowledge

Undoubtedly an easier principle for a modern would-be entrepreneur to grasp. That requirement is more acute now than at any time previously and certainly more so than when Hill wrote the book in the 1930s. The concept of establishing a niche and exploiting that niche by being seen as an expert in that area is probably one we are all comfortable with now.

To fulfil this step, it becomes essential then that the entrepreneur must attain and develop that specialised knowledge required. This step must not be missed. ‘Winging it’ has no place in the Hill Commandments!

Establish the knowledge you need and then analyse and consider how that knowledge can be attained. If you’re seeking to establish an online business you will be acutely aware of how much technical knowledge is required, even before the3 product itself is considered.

The message is simple – continue to evolve and develop the skills to develop and grow your business. This will be intense at first but will require constant evolution and maintaining and developing new skill sets.

Step 5 -  Imagination

Arguably this under-pins auto suggestion.  Whereas Desire is the catalyst for achievement, Imagination is necessary to give it physical form.

 Hill divided imagination into two distinct types:

1.       Synthetic imagination uses old concepts, ideas or plans and formulates into new combinations. Hill believed that nothing new is created that way although it could be argued that almost all innovation is derived from previous ideas (e.g. Apple’s basic iPod concept was taken from a Rank Xerox concept; Darwin drew heavily from theories at the time for his seminal work Origin of the Species)

2.       Creative imagination -  universal world mind that all humans can tap into. Essentially the combination of hunches and inspiration.
 The lessons here are less prescriptive but can be deduced as being:
1.       Find ways in which your creative mind can flourish – perhaps by taking yourself away from the issue.
2.       Keep a notebook to jot down all ideas however bizarre at the time
3.       Constantly challenge the status quo – is there a better way of doing it
4.       Seek out fertile minds from the same niche – look at the collective wisdom and look at the mavericks. Learn from both.

Step 6 - Organised Planning

This starts as above with Desire but becomes more integral to later success. It comprises the concept of leadership. That means becoming a leader! Note however that even Hill concedes that great leaders were once great followers. The trick is deciding when to take that more senior step. That means embracing the qualities of assuming responsibility, administering justice, courage, self-control, decisiveness, sympathy and understanding, mastery of detail, exceeding expectations as a habit and a willingness to cooperate and to assume responsibility.

Step 7 - Decision

Aligned closely with leadership. The qualities require reaching decisions promptly and standing behind those decisions. It is knowing what you want and ensuring you get it.

A more typical attribute found in most people is Indecision. Hill states this is a habit which usually begins in youth. “The habit takes on permanency as the youth goes through graded school, high school, and even through college, without definiteness of purpose.”

Do not allow yourself to be easily dissuaded by uninformed opinion. Opinions are described as ‘the cheapest commodities on earth.’

Step 8 - Persistence

Ah! Now here is the one which for me stands above all others. Strongly aligned with Faith, it is the act of refusal to give up. You learnt to walk, talk and even ride a bike in this manner – so what is different.

Hill refers to Edison and that quite famous account of being asked why when he had failed over a 1000 times to create the electric light bulb he didn’t simply give up. Edison’s response was that he succeeded in finding over 1000 ways in which it didn’t work!

If you’re running a business you will have continual setbacks and it so important to persist to find ways in which the strategy will eventually come good.

Hill prescribed a plan of action to reinforce persistence including alliances with like-minded people and shutting out negative and discouraging influences. That advice still holds good today. – advice that is still popular today.

 Step 9 - Mastermind

The concept incorporates the “coordination of knowledge and effort, in a spirit of harmony, between two or more people, for the attainment of a definite purpose.”

It is done with a desirted outcome of lifting the momentum to beyond the scope of the individuals concerned – almost creating an additional person. Essentially the 1 + 1 = 3 concept.

Hill - “no two minds ever come together without, thereby, creating a third, invisible, intangible force which may be likened to a third mind.”

It is the leverage that other minds provide – the concept of mentoring and brainstorming are all integral to this.

 Step 10 - Sex Transmutation

A somewhat more controversial subject but essentially stating that the sex drive is associated with vitality and creativity.

“Destroy the sex glands, whether in man or beast, and you have removed the major source of action. For proof of this, observe what happens to any animal after it has been castrated. A bull becomes as docile as a cow after it has been altered sexually.”

 Hill argues that successful men are often highly sexed. It is also why men are rarely truly successful until they are at least in their forties, when they are less preoccupied with women and more capable of using their sexual energy for other creative endeavours.

Sex transmutation is concerned with harnessing that sexual energy and driving it to more useful endeavours and projects, rather than denying that energy in the first place.

Step 11 -  The Subconscious

The goal of Auto-suggestion – to not allow positive and negative emotions to exist together as they will be an unhappy mix. The entrepreneur must therefore programme his mind to only allow positive emotions to exist.

Hill describes the seven desirable emotions as: desire, faith, love, sex, enthusiasm, romance, and hope.

The seven undesirable emotions are listed as: fear, jealousy, hatred, revenge, greed, superstition, and anger.

It is common sense that the latter seven are self-destructive but all of us allow those emotions to creep up. We need to be aware at all times that they are so destructive and will stop us from achieving the desired outcome by becoming all-consuming.

Step 12 – The Power of the Brain

Hill draws upon infinite intelligence to see that a brain is a collective pool of data which each individual brain can tap into. It acts like a radio as both a transmitter and receiver of signals –which rely on emotions to act as a pathfinder.

If I’m honest this is the one which I found most difficult and vague. It is a case however of seeking to harness this power through the affirmations of the previous Steps.

This I think Hill’s shortest chapter. As a strategy he discusses harnessing the power of the brain through the mastermind concept by using 3 people to discuss a round-the table problem and effectively ‘brainstorming’ it.

Step 13 - The Sixth Sense

Described by Hill as “the medium of contact between the finite mind of man and Infinite Intelligence” and” the point at which the mind of man contacts the Universal Mind.”

It is a principle which cannot be practised or disproved. It is the portion of the subconscious mind that becomes the Creative Imagination.

The harnessing of this is inter-dependent on harnessing the other 12. Sixth sense where it works warns the user of impending danger. How do you put this in a business context?  Hill describes the imaginary Council that he consults by using sleep to solve the main issues of the day. Although remaining imaginary it allows the creative mind to take unusual directions.

Quite how practical that really is I will leave you to decide!



by Andy Snowdon
Online Oracle
ajs.onlineoracle@gmail.com

Thursday, 5 November 2015

Be Careful When Your Affiliates Practice Link Cloaking

If you run an affiliate program you may have noticed that some of your affiliates use a practice known as “link cloaking.” Link cloaking is a method used to make a long affiliate URL link into a shorter and prettier one—often to the detriment of a brand.
One of the most common forms of link cloaking occurs when an affiliate doesn’t use its own URL at all, but rather just appropriates a brand’s URL without any disclosure. Look at these two links:
“http://affiliatename.hop.affiliateprogram.com”
“http://affiliateprogram.com/?clickid=abc1234567”
Neither tells the consumer anything about where their click is ultimately directed. So a link cloaker might change the link to something like these:
“http://affiliate.com/merchant.php”
“http://tinyurl.com/n1abc”
The first URL clearly identifies the merchant, whereas the second is simply a shorter URL seen more frequently as more and more people use link shortening services.
Affiliates practice link cloaking for a number of reasons:
  • It’s a consumer-friendly practice. A URL that contains the merchant’s name makes it more comfortable for consumers to click on the link.
  • To hide the affiliate’s identity. Cloaked links can hide unsavory search marketing tactics and keywords from you, the merchant.
  • To protect against commission hijacking. Some affiliates worry that spyware running on a consumer’s machine will replace their affiliate ID with the ID of another affiliate, thus hijacking their commissions.
  • To boost quality score. Google doesn’t seem to like affiliates very much which is very apparent in the low quality scores of many affiliate ads. Think about a landing page with nothing but ads and affiliate links that take the consumer from an AdWords listing to a landing page and then immediately through an affiliate link. Cloaking the affiliate link is a method used to beef up the quality score in this scenario.
  • Tracking: It is easier for the affiliate to track clicks and visitors when using its own URL.
Cloaking creates compliance roadblocks
When affiliates cloak their URLs a problem can arise for merchants who are trying to keep tabs on where and how their affiliates are advertising. Cloaking makes it harder to determine the source of the traffic, and to view the affiliate’s ID in the URL string.
There are a couple of things you can do to gain better insight when cloaking is deployed.First, you can provide your own cloaking software to your affiliates, allowing you to easily identify a cloaked URL and match it to the actual affiliate URL stored in your database.
Another method is to request that your engineering team grab the affiliate ID when the consumer is passed to your website from an affiliate ad, and include the affiliate ID in the landing page URL. Then you can track these links through your analytics package.
If you notice that your affiliates are cloaking their URLs, it’s best to reach out and to find out why. Then work with your affiliates to help solve their problems while at the same time being able to readily track and monitor what they are doing. If you don’t have a policy in place regarding link cloaking, you may consider appending your affiliate policy with explicit rules about what is and is not acceptable.



by Lori Weiman 

Wednesday, 28 October 2015

Value Investing: What Is Value Investing?

Value Investing: What Is Value Investing?

Unlike some investment strategies, value investing is pretty simple. It doesn't require that you have an extensive background in finance (although understanding the basics will definitely help), sign up for an expensive subscription service or understand how to analyze squiggly lines on charts. If you have common sense, patience, money to invest and the willingness to do some reading and accounting, you can become a value investor. Here are five fundamental concepts you'll need to understand before getting started.




Value Investing Fundamental No. 1: Companies Have Intrinsic Value

The basic concept behind value investing is so simple that you might already do it on a regular basis. The idea is that if you know the true value of something you can save a lot of money if you only buy things when they're on sale.

Most folks would agree that whether you buy a new TV when it's on sale or when it's at full price, you're getting the same TV with the same screen size and the same picture quality. The obvious assumption that we have to make is that the value of the TV will not depreciate with time as new technology becomes available. Stocks are the same way: the company's stock price can change even when the company's intrinsic value is the same. Stocks, like TVs, go through periods of higher and lower demand. These fluctuations change prices, but they don't change what you're getting.

Many savvy shoppers would argue that it makes no sense to pay full price for a TV since TVs go on sale several times a year. Stocks work the same way. The only difference is that, unlike TVs, stocks will not be on sale at predictable times of year like Black Friday and their sale prices won't be advertised. If they were, stocks on sale would be less of a bargain because more people would know about the sale and drive the price up. If you're willing to do the detective work to find these secret sales, you can get stocks at bargain prices that other investors will be oblivious to.

Value Investing Fundamental No. 2: Always Have a Margin of Safety

Buying stocks at bargain prices gives you a better chance at earning a profit later when you sell them. It also makes you less likely to lose money if the stock doesn't perform as you hope. This principle, called the margin of safety, is one of the keys to successful value investing. Unlike speculative stocks whose price can plummet, it is less probable that value stocks will continue to experience price declines.

You might already apply this principle when you shop. When you buy new clothes, maybe you don't like to pay full price because sometimes an article of clothing just doesn't work out. It might look good and feel comfortable in the store, but then when you wear it in real life, it feels too tight or too loose or it fades or shrinks in the washing machine. If you buy a shirt on sale for $20 instead of buying it at full price for $60, you will only lose $20 on a bad shirt purchase. If you pay $60, your loss will be significantly greater. By purchasing the shirt on sale for $20, you limit your potential loss. On the other hand, you might end up wearing the shirt a hundred times, making it a great bargain at only $20. Either way, you're better off buying the shirt for $20 than for $60. Of course, unlike stocks, your clothes won't appreciate in value and you won't sell them for a profit later.

Value investors implement the same sort of reasoning. If a stock is worth $100 and you buy it for $66, you'll make a profit of $34 simply by waiting for the stock's price to rise to the $100 it's really worth. On top of that, the company might grow and become more valuable, giving you a chance to make even more money. If the stock's price rises to $110, you'll make $44 since you bought the stock on sale. If you had purchased it at its full price of $100, you would only make a $10 profit. Benjamin Graham, the father of value investing, only bought stocks when they were priced at two-thirds or less of their intrinsic value. This was the margin of safety that he felt was necessary to earn the best returns while minimizing investment downside.


Value Investing Fundamental No. 3:The Efficient-Market Hypothesis Is Wrong

Value investors don't believe in the efficient-market hypothesis, which says that stock prices already take all information about a company into account. Value investors believe that sometimes stocks are underpriced or overpriced. For example, a stock might be underpriced because the economy is performing poorly and investors are panicking and selling all their stocks (think Great Recession). Or it might be overpriced because investors have gotten overly excited about a new technology that hasn't proven itself yet (think dot-com bubble).


Value Investing Fundamental No. 4: Successful Investors Don't Follow the Herd

Value investors possess many characteristics of contrarians - they don't follow the herd. Not only do they reject the efficient-market hypothesis, but when everyone else is buying, they're often selling or standing back. When everyone else is selling, they're buying or holding. Value investors don't buy the most popular stocks of the day (because they're typically overpriced), but they are willing to invest in companies that aren't household names if the financials check out. They also take a second look at stocks that are household names when those stocks' prices have plummeted. Value investors believe companies that offer consumers valuable products and services can recover from setbacks if their fundamentals remain strong.

Value investors only care about a stock's intrinsic value. They think about buying a stock for what it actually is - a percentage of ownership in a company. They want to own companies that they know have sound principles and sound financials, regardless of what everyone else is saying or doing.


Value Investing Fundamental No. 5: Investing Requires Diligence and Patience

Value investing is a long-term strategy - it does not provide instant gratification. You can't expect to buy a stock for $66 on Tuesday and sell it for $100 on Thursday. In fact, you may have to wait years before your stock investments pay off. (The good news is that long-term capital gains are taxed at a lower rate than short-term investment gains.)

What's more, value investing is a bit of an art form - you can't simply use a value-investing formula to pick the right stocks which fit the desired criteria. Like all investment strategies, you must have the patience and diligence to stick with your investment philosophy even though you will occasionally lose money.

Also, sometimes you'll decide that you want to invest in a particular company because its fundamentals are sound, but you'll have to wait because it's overpriced. Think about when you go to the store to buy toilet paper: you might change your mind about which brand to buy based on which brand is on sale. Similarly, when you have money saved up to invest in stocks, you won't want to buy a stock just because it represents a share of ownership in your favorite company - you'll want to buy the stock that is most attractively priced at that moment. And if no stock is particularly well priced at the moment, you might have to sit on your hands and avoid buying anything. (Thankfully, stock purchases, unlike toilet paper purchases, can be postponed until the time is right.)




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