What is Value Investing?
Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value. Investors who adopt this approach seek to take advantage of market inefficiencies and mispricing of stocks. The key principle behind value investing is the belief that the market may overreact to news, leading to price distortions.
Value investors typically look for stocks with strong fundamentals, such as low price-to-earnings (P/E) ratios, high dividend yields, and stable earnings. Popularized by famous investors like Benjamin Graham and Warren Buffett, this strategy focuses on long-term investment and requires patience and meticulous research.
Unlike growth investing, which focuses on companies expected to grow at an above-average rate, value investing emphasizes purchasing securities that are undervalued relative to their true worth. This often means investing in companies in mature industries that may not exhibit rapid growth but possess solid cash flow and financial health.
Overall, value investing is about finding and holding onto stocks that are undervalued by the market, waiting for their true value to be recognized over time, resulting in potential long-term gains.