What Is Value Investing

Value investment is the investment strategy that takes into account the intrinsic value of the stocks rather than the current share prices. This usually involves trading with stocks that are severely undervalued by the market and are currently going for less than their intrinsic values. Value investing is the perfect strategy for those who are willing to sit back and wait for a stock to rise.

Most value investors use a variety of indicators when it comes to choosing where to invest. Some may look at the present assets and earnings of the company, while others may put a higher premium on the future growth and cash flows of the company. Despite the different indicators, value investment boils down to buying shares at a lower price than they are worth for a profit down the road, when the stocks can be sold for a higher price.

When there is a discrepancy between the current market value and the intrinsic value of the company, as determined by the investor using his or her criteria, then it is during this time that he buys. Shares are typically sold off when the gap between the current market value and the intrinsic value closes or reverses, leaving the investor with a comfortable profit.

The main difference that separates value investing from growth investing is that the former does not rely on ‘hot tips,’ rumors, and market hysteria surrounding a particular stock. It has also been found that investors who utilize value investment strategy consistently outperform growth investors, despite the fact that the potential for returns in value investment is lower than those expected in growth investment.