So-called value investing involves seeking out high-quality listed companies to buy and then holding their stocks for the long term to obtain high returns.

However, ordinary investors often encounter many difficulties and problems when engaging in value investing.

This leads to a relatively low return on value investing, and there is even a possibility of losses after a long period of waiting.

The main issues exposed are as follows.

First, the purchase price is too high.

The reason why most people who engage in value investing do not achieve high returns is the poor purchase price.

Whether a listed company is good or not is not determined by whether its stock price has risen or fallen; it should always be very good.

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The essence of the high purchase price is that when the price is low, it is ignored and not noticed by people.

Many high-quality companies only start to attract attention and tell the story of value investing after their stock prices have risen.

It's like the big four banks, which have always been good, but when their stock prices were plummeting, no one cared about them.When the hype around bank stocks begins, they once again become one of the benchmarks for value investing.

This leads to many retail investors who are just starting with value investing to easily buy at higher prices.

Once the purchase is made at a high price, the actual floating losses that will be incurred are also not small, which requires special attention.

Secondly, there is a higher risk of performance.

The foundation of value investing lies in the performance of the listed companies.

Some people mistakenly believe that some blue-chip stocks have a performance that is stable and upward over the years.

Every industry has cycles, and every company is the same, and there is a risk of performance.

No company can maintain growth for a long time without decline, and there will be some crises along the way.

Some are crises brought by the industry, some are crises brought by the succession of the listed company's leaders, and some are crises brought by the change of the times.

Crisis means there is risk, which is a very normal thing.Individual investors buying stocks face performance risks, and the resulting stock price fluctuations are not trivial. Once expectations change, it is possible for stock prices to be halved.

This must be guarded against, but it is difficult to completely prevent.

Third, the waiting period is too long.

Value investing definitely requires waiting.

The waiting period is uncertain, it could be one year, it could be three to five years, or it could be only half a year, or even a week.

No one knows when these stocks will return to their value, which is also a major difficulty in value investing.

The biggest risk of a long waiting period is change.

Delays lead to changes, which must be reasonable. If some leading companies are overtaken during the waiting period, then the corresponding value will be greatly reduced.

Fourth, the industry changes too quickly.

Nowadays, the changes in the industry are very fast.Due to the rapid pace of economic development, the era and technology have replaced many things.

For example, touchscreen smartphones have replaced keyboard phones, directly leading to a change in the leading companies in the industry.

This does not even include industry changes such as smartphones replacing digital cameras.

Even in the consumer industry, which is hailed as the most stable, changes are very fast.

Once glorious brands like Metersbonwe have also been quickly eliminated by the tide of the times.

Among the four necessities of life, it seems that only food has been preserved, and related companies can still consolidate their industry status.

But as for growth, many brands have long since disappeared.

Industry changes will lead to unprecedented challenges for companies, which is also the most difficult point in value investing.

For retail investors, it is not that they cannot do value investing, but they must remember a few points.By focusing on several key points, you can effectively smooth out the risks inherent in value investing and reap the rewards that value brings.

Firstly, the purchase valuation should be relatively low.

Prioritize buying stocks in the low valuation range.

The so-called low valuation means that the price-to-earnings ratio of the individual stock is significantly lower than the industry average price-to-earnings ratio.

Moreover, the industry's average price-to-earnings ratio is at a relatively low level compared to historical averages.

This indicates that the stock, the industry, is undervalued in the short term, forming a valuation trough.

Usually, such opportunities arise in a major bear market, which is also the best time for value investing.

Secondly, diversify the purchase of individual stocks.

It is recommended that the stocks purchased in value investing should be diversified.

10-20 is a more reasonable number, while less than 5 may lead to instability in the rate of return.Once dispersed, the risks encountered by a single listed company are actually spread out.

Among high-quality enterprises, even if there are changes, there won't be a large number of changes occurring all at once.

If you invest in 20 high-quality enterprises, there will always be 10-15 that can maintain stable growth. However, the performance increase may not be too high, and the overall investment return rate may be spread out.

Even if there are a few enterprises with minor issues, it will not affect the overall returns.

Of course, when a problematic enterprise is identified, it is necessary to replace it in a timely manner. There is no need to stick with it; if it is on a downward trend, it is on a downward trend.

Third, diversify the industries you invest in.

For industries, there should also be sufficient diversification.

For example, in the broad consumer sector, food is part of broad consumption, beverages are part of broad consumption, white liquor is part of broad consumption, household goods are part of broad consumption, home appliances are part of broad consumption, and pharmaceuticals are also part of broad consumption.

In a strict sense, automobiles can also be considered part of broad consumption.

The more diversified the industries, the smaller the industry risks encountered.If all industries carry risks and are affected indiscriminately, it is certain that the economy has encountered problems.

When the economy faces issues, it is inevitable that buying stocks will result in some losses, as no investment would fare well under such circumstances.

However, you must understand that after the economic recovery, high-quality companies are also the fastest to bounce back, as they possess sufficient strength and ample capital.

Fourthly, opt for stocks with higher dividends.

Try to purchase stocks with high dividend yields, so even when facing paper losses, there is still the annual dividend as a stable return.

Investments require returns, and dividends are actually a very good form of return.

Aim for stocks with dividends that are stable at over 5%.

Although not many, according to the dividend announcements, there are 20-30 companies with dividends exceeding 5% every year, and there are still a dozen or so that have maintained a dividend of over 5% for three consecutive years.

The cash flow of these companies is relatively stable, and the dividend payouts are also quite considerable.

Although the stock price may not rise every year, a stable return rate is also an important part of value investing.Finally, for the expectations of value investing, do not set them too high. The average annual return rate should be in line with the annual growth rate of high-quality listed companies.

For instance, the compound ROE of the CSI 300 is just over 10%, so your target return should also be just over 10%.

The underlying logic of value investing is to share the dividends brought about by the growth of these listed companies.

When the growth of listed companies slows down, there will only be the simple annual revenue dividends, and having a 5% return is also quite good.

After all, in the current market, investments that can provide a stable return of 5% are no longer common.