Value investing is a strategy which promotes investing in company stocks trading at a price lesser than their intrinsic value. Value investors are always on the lookout for stock prices that are trading at a discount or are believed to have been undervalued by the market. They look for stocks with strong fundamentals and believe in long term investing, i.e. buy and hold, by acting on investor irrationality about stock prices. Value investors look for stocks that are out of favor, than those that are popular. Also, they consider themselves to be part-owners in the companies they invest it.
Markets usually tend to react emotionally to negative news and that provides the perfect buying opportunity for value investors, hunting for stocks that might have under-performed in recent history but show potential to out-perform in the long run. Cyclical industries allow for stocks to be highly undervalued at times. Here, value investors try to get in at the bottom of the cycle to achieve maximum gains, hoping to exit their investments near the cycle’s peak. A great resource for fundamental analysis on a company to evaluate its intrinsic value is Valuation App.
Value Investors look for the following while making investment decisions in a company:
This might sound like a lot of work before picking the right company to invest in, but value investing is all about patience and a long term horizon. The most consistently successful investors have been value investors.