By Amy Fontinelle

Value investing is like buying Easter candy the day after Easter. The candy still has the same intrinsic value - it's still sugary, delicious and essentially as fresh as it was in the days leading up to Easter. But instead of paying full price to buy the candy the Saturday before Easter, when its demand is highest, value investors buy Easter candy the Monday after the holiday, when demand and prices plummet. They recognize that just because a piece of chocolate is shaped like a bunny doesn't make it any less delicious.

Value investors get significant discounts on their purchases by questioning the wisdom of market prices. These significant discounts allow them to not only build in a margin of safety that limits their losses in case their purchases don't work out, but to earn high percentage returns by holding onto their investments until they rise to meet or exceed their true value. Just as they aren't willing to settle for paying market prices, value investors aren't willing to settle for average returns. They believe that if they are willing to do the legwork, they can beat the market. (For related reading, see Finding Profit In Troubled Stocks.)

If you're already a bargain shopper, an independent thinker, a diligent worker and a patient person, you probably have what it takes to become a successful value investor. Value investors commonly do their own research and fundamental analysis, relying on financial statements and metrics such as profit margins, price-to-earnings ratios and book value to pick individual stocks to invest in. If this method doesn't appeal to you, however, you can pursue value investing through other means or try a different investment strategy altogether.





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