Value Investing

Dictionary Says

Definition of 'Value Investing'

The strategy of selecting stocks that trade for less than their intrinsic values. Value investors actively seek stocks of companies that they believe the market has undervalued. They believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond with the company's long-term fundamentals. The result is an opportunity for value investors to profit by buying when the price is deflated.

Typically, value investors select stocks with lower-than-average price-to-book or price-to-earnings ratios and/or high dividend yields.
Investopedia Says

Investopedia explains 'Value Investing'

The big problem for value investing is estimating intrinsic value. Remember, there is no "correct" intrinsic value. Two investors can be given the exact same information and place a different value on a company. For this reason, another central concept to value investing is that of "margin of safety". This just means that you buy at a big enough discount to allow some room for error in your estimation of value.

Also keep in mind that the very definition of value investing is subjective. Some value investors only look at present assets/earnings and don't place any value on future growth. Other value investors base strategies completely around the estimation of future growth and cash flows. Despite the different methodologies, it all comes back to trying to buy something for less than it is worth.

Sign Up For Term of the Day!

Try Our Stock Simulator!

Test your trading skills!

Related Definitions

  1. Growth At A Reasonable Price - GARP

    An equity ...
  2. Price-To-Book Ratio - P/B Ratio

    A ratio used to ...
  3. Price-Earnings Ratio - P/E Ratio

    A valuation ...
  4. Value Stock

    A stock that ...
  5. Value Trap

    A stock that ...
  6. Intrinsic Value

    1. The actual ...
  7. Net-Net

    A value ...
  8. Magic Formula Investing

    A money-making ...
  9. Undervalued

    A financial ...
  10. Investment Philosophy

    A set of guiding ...

Articles Of Interest

  1. 5 Must-Have Metrics For Value Investors

    These quick-and-dirty ratios will help you find the most undervalued stocks on the market.
  2. Hetty Green: The Witch Of Wall Street

    Hetty Green was the richest woman of her time and possibly the first value investor, yet she's not remembered kindly.
  3. Stock-Picking Strategies: Value Investing

    Learn how famed investor Warren Buffett finds winning stocks.
  4. The 3 Most Timeless Investment Principles

    Benjamin Graham pioneered cutting edge concepts that propelled other top investors to fame.
  5. The Value Investor's Handbook

    Learn the technique that Buffett, Lynch and other pros used to make their fortunes.
  6. Warren Buffett's Frugal, So Why Aren't You?

    The Oracle of Omaha has a net worth in the billions, but his lifestyle is not as rich as you may think.
  7. Why Warren Buffett Envies You

    The Oracle of Omaha can move over - there's a new investor in town.
  8. Value Investing Using The Enterprise Multiple

    This simple measure can help investors determine whether a stock is a good deal.
  9. Warren Buffett: The Road To Riches

    Find out how he went from selling soft drinks to buying up companies and making billions of dollars.
  10. Value Investing + Relative Strength = Higher Returns

    Buying value stocks that are moving higher helps investors steer clear of value traps.

comments powered by Disqus
Recommended
Loading, please wait...
Trading Center