1. Value Investing: Introduction
  2. Value Investing: What Is Value Investing?
  3. Value Investing: How Stocks Become Undervalued
  4. Value Investing: Finding Undervalued Stocks
  5. Value Investing: Finding Value In Financial Reports And Balance Sheets
  6. Value Investing: Finding Value In Income Statements
  7. Value Investing: Managing The Risks In Value Investing
  8. Value Investing: Famous Value Investors
  9. Value Investing: Couch Potato Value Investing
  10. Value Investing: Common Alternatives to Value Investing
  11. Value Investing: Conclusion

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.


Related Articles
  1. Investing

    Candy Makers Shape Up: Take New Health Pledge

    Heightened government regulation and consumer health trends force the industry to evolve.
  2. Investing

    Why You Should Ignore the Buy Low, Sell High Rule

    Here's why the often quoted buy low, sell high rule is a bad idea, and what you should replace it with.
  3. Investing

    How Much Americans Spend On Halloween

    Americans are due to spend $8.4 B this year on Halloween.
  4. Investing

    What Is The Intrinsic Value Of A Stock?

    Intrinsic value can be subjective and difficult to estimate. It’s a perception of a security’s value that factors tangible and intangible factors.
  5. Investing

    What Is The Intrinsic Value Of A Stock?

    Intrinsic value reduces the subjective perception of a stock's value by analyzing its fundamentals.
  6. Financial Advisor

    Value Investing Strategies in a Volatile Market

    Volatile markets are a scary time for uneducated investors, but value investors use volatile periods as an opportunity to buy stocks at a discount.
  7. Investing

    What Is The Value In Value Investing?

    Value investing has its advantages, but it also has significant drawbacks. We look at the pros and cons.
  8. Investing

    Market Value Versus Book Value

    Understanding the difference between book value and market value is a simple yet fundamentally critical component to analyze a company for investment.
Frequently Asked Questions
  1. Is There a Difference Between the Equity Market and the Stock Market?

    Equities and stocks refer to the same thing.
  2. What Happens to a Company's Stock When it Goes Bankrupt?

    Shareholders may be entitled to a portion of the liquidated assets in the wake of a bankrutpcy, but the stock will be worthless.
  3. What are Advantages and Disadvantages of Preference Shares?

    Preference shares have advantages and disadvantages for both investors and issuing companies.
  4. When am I eligible to receive Social Security benefits?

    Understand when you are eligible to begin collecting Social Security retirement benefits and how retiring at different ages ...
Trading Center