Value investing is an investment strategy that involves buying securities that appear underpriced by some form of fundamental analysis. The value investing comes from the investment philosophy taught by Benjamin Graham and David Dodd at Columbia Business School in 1928 and wrote the textbook, “Security Analysis”, in 1934. One of the best and most well-known value investor is Berkshire Hathaway chairman Warren Buffet. Warren Buffet believes that value investing means buying stocks at less than their intrinsic value.
Listed below are the ideas to follow.
- Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.
- Value investors actively search for stocks they think the stock market is underestimating.
- Value investors use financial analysis, don’t follow the herd, and are long-term investors of quality companies.
Value investing has proven to be a successful investment strategy. Follow these simple value strategies:
- Buy low PE ratio stocks.
- Buy low price-to-cash-flow ratio stocks.
- Buy low price-to-book ratio stocks.
A review of 26 years of data (1990 to 2015) from US markets found that the over-performance of value investing was more pronounced in stocks for smaller and mid-size companies than for larger companies and recommended a “value tilt” with greater emphasis on value than growth investing in personal portfolios.
Therefore, value investing is a long-term strategy.