You may have noticed that eToro provides certificates for some Popular Investors, formally identifying them as “Value Investors.” Below, we discuss the concept of “Value Investing” and how we recognise it at eToro.
“Price is what you pay; value is what you get”
Value investing is an investing philosophy first developed by Benjamin Graham and David Dodd in the 1930s, which focuses on buying stocks that trade below their fundamental value. Although all investment styles seek to buy something low and sell high, the value investing model is based on a few very important principles:
- Business owners: Value investors buy businesses, not stocks. Stocks are a tool for buying a piece of the company.
- Value vs Speculation: Value investors do not base their decisions on speculative assumptions; they base their decisions on deep quantitative and qualitative research for every company they buy.
- Long-term thinking: Many people invest in the stock markets based on speculation with the intention of making fast and ‘easy’ money. Value investors invest for the long term; they do not check what the investment is doing today or tomorrow, but in 3-5 years. Some even buy and hold companies forever.
- Margin of safety: Value investors seek to pay low prices (usually low multiples) for good, growing business. The idea is that the stock market is not a safe place, and like any place that is not safe, they have to be cautious and limit their risk. That requires value investors to be very patient and pass on many ideas until they find the right one. Some even wait a few years between investments.
- Volatility and human behaviour: The markets are very volatile on a minute-by- minute basis. That leads most investors to take actions based on emotions, such as greed and fear, which in return (on average), cause many investors to lose money in the long term. Value investors concentrate on the companies’ financial reports and not on the daily share price.
Value investors see volatility as an opportunity during a downtrend. In other words, as opposed to other investors who may panic and sell, the value investor will buy more shares, even if the company went down by 50%, if they believe that the fundamental value did not change.
Who is Considered a Value Investor on eToro?
A Value Investor on eToro is a Popular Investor who adheres to the principles outlined above. The Popular Investor Team identifies potential Popular Investors with such strategies and then has a consultant (a professional long-term value investor) discuss with them how they analyse stocks and construct their portfolio.
Note that recognition of a Popular Investor as a Value Investor should not be considered as an endorsement or a recommendation by eToro. It is simply for informative purposes.
Copying a Value Investor on eToro
eToro takes all types of investing very seriously, and as such, has decided in recent months to invest some resources and empower the value investment method.
To succeed in this investment strategy, we believe copiers should invest with a few principles in mind:
- Consider committing capital for the long term: no less than 12 months. Look at this investment as a long-term endeavour and not a quick money-making strategy.
- Do not judge the Popular Investor’s results based on a daily or monthly portfolio change, but rather, on at least a 3-5 year investment horizon. This is not to say that results are guaranteed at the end of this period, but simply to set expectations that unrealised losses and profits can be experienced over such a time frame.
- Understand that every company the Popular Investor buys has real value and that the decision to buy has deep analysis and thought behind it.
- You can identify a value investor in their bio or via the feed.
Here are some examples of Popular Investors who meet many of the above criteria:
Your capital is at risk
Are you interested in establishing yourself as a Value Investor on eToro?
To establish yourself as a Value Investor on eToro, you may wish to consider doing the following:
- Apply for the Popular Investor Program, if you have not done so already.
- Write a detailed analysis for every holding you have and share it with the Popular Investor Team: firstname.lastname@example.org The team may choose to pin your analysis on the relevant instrument’s feed.
- Once every 6 months, update and review this analysis.
- Update your followers at least twice a month about your positions and other relevant news.
- Write a quarterly update for every holding you have, after earning reports are published.
- Make sure to acknowledge your eToro activity in other social media, such as Linkedin, Twitter and relevant Facebook groups.
- Commit to quarterly YouTube updates and/or to live video conference calls with your followers and copiers. Use this call to summarise the quarter and share what you think about the markets.
Think about whether all of your investment decisions are research-based or not.
- Consider keeping your holding period of stocks to a specific standard.
- Be careful about adjusting your strategy and consider whether having exposure to speculative asset classes such as FX, crypto or commodities is a reflection of a true value investment strategy.
What will you get out of becoming a Value Investor on eToro?
- Potential growth and retention of AUM on the platform
- Exposure as a well-regarded and visible Popular Investor, research analyst and value investor in the eToro community
- Personalised feedback from a professional Value Investor and eToro consultant
- The Popular Investor team is more likely to pin your posts on instrument pages, providing you with more visibility and a reputation for being a thought leader of certain companies.
- Official recognition by eToro as a Value Investor
The above content is for information and educational purposes only and should not be considered investment advice.