Value Investing

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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.

Articles Of Interest

  1.

    Warren Buffett: How He Does It

    We look at the Sage of Omaha's methodology for evaluating value stocks.

  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. The 3 Most Timeless Investment Principles

    Benjamin Graham pioneered cutting edge concepts that propelled other top investors to fame.

  4. Take On Risk With A Margin of Safety

    More common risk theories can lead to missed opportunities. Find out how margin of safety can propel your portfolio.

  5. Top 5 Books For Young Investors

    Reading these respected tomes will help you begin your journey into investing on the right foot.

  6. 5 Must-Have Metrics For Value Investors

    These quick-and-dirty ratios will help you find the most undervalued stocks on the market.

  7. The Value Investor's Handbook

    Learn the technique that Buffett, Lynch and other pros used to make their fortunes.

  8. Relative Valuation Of Stocks Can Be A Trap

    This method of valuing a company can make it look like a bargain when it is not.

  9. 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.

  10. Sell Growth Stocks The IBD Way

    Savvy investing is all about learning some smart rules and sticking to them. We give you the rundown.
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