Thinking Structurally About the Combination of Swing Trading and Undervalued Stocks

“If I target undervalued stocks, can’t I achieve stable results even with swing trading?”—I think this line of thinking is a very natural entry point for investing. Just by being undervalued, there is a sense of security regarding the downside, and it is easy to hold the expectation that the stock will eventually be re-evaluated to its intrinsic value. Many investment books on bookstore shelves also discuss the advantages of undervalued stock investing, so it is understandable why this idea is widely supported.

However, my experience so far has been that when you actually face this combination, it is not as simple as the intuitive image suggests. The idea of “buying because it’s cheap” seems low-risk at first glance, but behind it lie several structural issues that are often overlooked. Today, I will summarize my own thoughts on the combination of undervalued stocks and swing trading while organizing them as structurally as possible. I should mention in advance that this article does not recommend buying or selling any specific stocks, but is intended to organize a way of thinking.

First, as a premise, the term “undervalued” itself is actually used quite ambiguously. It can refer to cases where indicators such as PER (Price Earnings Ratio) or PBR (Price Book-value Ratio) are low compared to industry peers or the market average, or it can refer to cases where the market capitalization is significantly smaller than the company’s assets or cash holdings. If you discuss “whether undervalued stocks are a buy” while leaving this ambiguity in definition, the discussion itself will not align.

Furthermore, the term “undervalued stock investing” itself is a concept often discussed in the context of long-term investment, which originally assumes a time horizon of several years. It is necessary to keep in mind from the start that trying to apply this to swing trading—a method with a completely different time horizon that seeks results in a few days to a few weeks—is inherently prone to certain difficulties. In this article, I will think through, step by step, how to overcome this gap in time horizons, or whether it can be overcome at all.