Value investing is a strategy that entails seeking out companies that have a very low valuation in the stock market, but actually, have a lot of intrinsic value. The intrinsic value essentially means the actual worth of the company, its assets, cash, market position, income and goodwill. It can be difficult to calculate intrinsic value this is what makes value investing a time consuming strategy.
The most famous value investors of all time include the father of value investing Benjamin Graham and Warren Buffet. Buffet is widely considered the greatest investor of all time.
Value investors believe that the stock market constantly undervalues companies and therefore this undervaluation represents an opportunity. The more undervalued the company is the higher the margin of safety. The margin of safety is the difference in the market capitalization of the stock and its actual intrinsic value.
Further Reading: The Intelligent Investor. Benjamin Graham.
CANSLIM – a practical method to apply value investing. Description of CANSLIM, or check out the book review of “How to Make Money In Stocks” by Willian O’Neil
Value investing is a well-proven strategy that is clearly evident in the success of Warren Buffet and the Berkshire Hathaway Group.
If you cannot decipher company accounts and devote the time to researching companies in detail you will not be successful.
You may find a good company buts its share price may not move for years.
Average trade duration
Long-Term – Years
Effort to maintain the strategy
High – lots of research required
Low to medium