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Investing in undervalued companies- The Fundamentals

The best tutorial for "value investing " is perhaps most appropriately explained by my favorite cousin Vinny in a 1991 movie, Other People’s Money
Danny DeVito ( Cousin Vinny forever) explains the timeless concept of value investing & intrinsic value in less than 3 minutes.



In this clip, Garfield's computer, who he calls Carmen names New England Wire & Cable the fairest of all stocks.  

Garfield, Coles, and Jorgenson discuss the value of a company, New England Wire & Cable Company.  $30 million of equipment, $10 million in land, $60 million from ‘boring but profitable companies’ in non-Wire and Cable divisions and $25 million in working capital.
Garfield rounds the total down to $100 million (attributed $25 million shaved off due to Carmen's PMS)  and divides by 4 million shares of common stock to obtain a value of $25 per share. However, 3 weeks ago the share was trading at $10. This means that NEWC’s stock is selling at a bargain price relative to their fundamentals.
When you analyze a company to invest in, the goal should be to figure out its "intrinsic value"; the perceived or calculated value of its assets. 
Typically both qualitative and quantitative measures are used. Using the business model, governance, and target market factors—and quantitative—such as financial ratios and financial statement analysis. The resulting value is compared to the market value to determine whether the business or asset is over- or undervalued.

Valuation assumptions are always subjective. Some investors might place a higher emphasis on a corporation's management team while others might view earnings and revenue as the gold standard.

Investors like Warren Buffet, who  Value Invest, believe that the market overreacts to news, both good and bad; which triggers price fluctuations that don’t correspond to the company’s long-term fundamentals.  So when price temporarily declines, it creates an opportunity for the investor to profit – because the market will eventually correct its error in valuation, greatly benefitting the investor who keeps tabs on political and economic news cycles and does good research. 



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