{"id":678,"date":"2020-12-04T09:29:47","date_gmt":"2020-12-04T09:29:47","guid":{"rendered":"https:\/\/www.invest19.com\/blog\/?p=678"},"modified":"2021-04-06T05:43:36","modified_gmt":"2021-04-06T05:43:36","slug":"investing101-why-stocks-become-undervalued","status":"publish","type":"post","link":"https:\/\/www.invest19.com\/blog\/investing101-why-stocks-become-undervalued\/","title":{"rendered":"Investing101: Why Stocks Become Undervalued?"},"content":{"rendered":"<div style=\"margin-top: 0px; margin-bottom: 0px;\" class=\"sharethis-inline-share-buttons\" ><\/div>\n<p>Warren\nBuffett\u2019s value investing approach to investing in security made many investors\nstopped believing in the efficient market hypothesis that dictates that the\ncurrent market price always reflects the value of the security. Instead, value\ninvestors believe that stocks may be undervalued or overvalued for a variety of\nreasons. As a result, value investing is now recognized as a smart approach to\ninvesting in the stock market. Consequently, many individual investors are\nconstantly looking for\ndifferent ways to know overvalued and undervalued stocks. <\/p>\n\n\n\n<p>Before going that far, it is important to understand why stocks become undervalued and what the major factors are behind to make stocks undervalued. This article aims to make recommendations on why stocks become undervalued. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"counter-hierarchy counter-decimal ez-toc-grey\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\"><i class=\"ez-toc-glyphicon ez-toc-icon-toggle\"><\/i><\/a><\/span><\/div>\n<nav><ul class=\"ez-toc-list\"><li><a href=\"#Herd_Mentality\" title=\"Herd Mentality\">Herd Mentality<\/a><\/li><li><a href=\"#Market_Crashes\" title=\"Market\nCrashes\">Market\nCrashes<\/a><\/li><li><a href=\"#Unnoticed_Stocks\" title=\"Unnoticed\nStocks\">Unnoticed\nStocks<\/a><\/li><li><a href=\"#Cyclicality\" title=\"Cyclicality\">Cyclicality<\/a><\/li><li><a href=\"#Bad_News\" title=\"Bad\nNews\">Bad\nNews<\/a><\/li><\/ul><\/nav><\/div>\n\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Herd Mentality<\/strong><\/h2>\n\n\n\n<p>It\nhas often seen that many individuals invest in stock market irrationally based\non psychological basis rather than company fundamentals. Everyone is looking to\nbuy low and sell high. So, whenever the market is rising or a particular stock\nrise in price, they buy. It is because they see that if they had invested 5 or\n6 weeks ago, they could have made higher returns. In addition, they come in a state\nof #FOMO (Fear of Missing Out). <\/p>\n\n\n\n<p>Conversely,\nwhen the market is declining or a specific stock is falling in price, they\nstart panic selling. So, instead of holding onto their investments, they accept\nthe losses and exit the market. Such investors\u2019 behaviour is so influencing\nthat it affects the price of individual stocks. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Market\nCrashes<\/strong><\/h2>\n\n\n\n<p>Whenever\nthe market reaches an unbelievable high, it usually results in a bubble.\nHowever, since the levels are unsustainable, the investors end up panicking,\nwhich results in massive sell-offs. This results in a market crash. This has\nhappened before when the companies whose prices shot up beyond what the companies\nwere actually worth. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Unnoticed\nStocks<\/strong><\/h2>\n\n\n\n<p>Everyone\nis looking for trendy stocks to buy and make profits. It is what limits the\nvision of many investors in search of stocks to invest. In reality, investors\nmust wide their vision and see beyond the trendy stocks, which provides the\nopportunities to find some good undervalued stocks that may not be on people\u2019s\nradar like small-cap stocks that can generate huge returns over an extended\nperiod. <\/p>\n\n\n\n<p>Instead,\npeople want to be part of the next big thing like blue-chip stocks that are\nmost likely to be affected by the herd-mentality investing. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Cyclicality<\/strong><\/h2>\n\n\n\n<p>Cyclicality\ndepicts the fluctuations that affect a business. As we all know that companies\nare not immune to economic ups and downs, whether that\u2019s seasonality, currently\ngoing COVID-19 pandemic, or consumers\u2019 behaviour. Any or all of this can affect\na company\u2019s profit levels and the market price of the company\u2019s stock. However,\nit does not affect the company\u2019s actual worth or value in the long-term. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Bad\nNews<\/strong><\/h2>\n\n\n\n<p>There\nare many factors behind the stock market volatility and movement in stock\nprices. Any latest update, quarterly result, or some major announcement related\nto a company or relative sector can affect a company\u2019s stock price. Even good\ncompanies face setbacks. However, just because a company is facing some setback\ndue to some single negative event or a quarterly result does not mean the\ncompany is not fundamentally valuable or its stock price will not bounce back. <\/p>\n\n\n\n<p>Many\ninvestors start panicking on such news but value investors see beyond the\nnegative event or news and recognize the company\u2019s worth in long-term.<\/p>\n<div class='epvc-post-count'><span class='epvc-eye'><\/span>  <span class=\"epvc-count\"> 3,246<\/span><\/div><div class=\"pld-like-dislike-wrap pld-template-1\">\n    <div class=\"pld-like-wrap  pld-common-wrap\">\n    <a href=\"javascript:void(0);\" class=\"pld-like-trigger pld-like-dislike-trigger \" title=\"\" data-post-id=\"678\" data-trigger-type=\"like\" data-restriction=\"ip\" data-ip-check=\"0\" data-user-check=\"1\">\n                        <i class=\"fas fa-thumbs-up\"><\/i>\n                    <\/a>\n    <span class=\"pld-like-count-wrap pld-count-wrap\">8    <\/span>\n<\/div><\/div>\n\n","protected":false},"excerpt":{"rendered":"<p>Warren Buffett\u2019s value investing approach to investing in security made many investors stopped believing in the efficient market hypothesis that dictates that the current market [&hellip;] <span class=\"read-more-link\"><a class=\"read-more\" href=\"https:\/\/www.invest19.com\/blog\/investing101-why-stocks-become-undervalued\/\">Read More<\/a><\/span><\/p>\n","protected":false},"author":1,"featured_media":679,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2,7,10],"tags":[26,168],"class_list":["post-678","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-stock-market","category-investment","category-featured","tag-value-investing","tag-undervalued-stocks"],"_links":{"self":[{"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/posts\/678","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/comments?post=678"}],"version-history":[{"count":1,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/posts\/678\/revisions"}],"predecessor-version":[{"id":680,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/posts\/678\/revisions\/680"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/media\/679"}],"wp:attachment":[{"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/media?parent=678"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/categories?post=678"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/tags?post=678"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}