Value investing is buying stocks of companies that the market has undervalued. Value investors believe that the market has overreacted to bad or good news and this causes the stock prices of the companies to reduce. The logic behind value investing is buying stocks when the prices are low.
Different investors will look at companies differently when they opt for value investing. There might be an investor who will only look at the current assets and earning while another will look for future growth.
A well known value investor is Warren Buffet while Benjamin Graham is regarded as the father of value investing. Benjamin Graham wrote the book The Intelligent Investor that brought value investing to individual investors. Many of Graham’s students went on to be successful value investors. Some of them are William Ruane, Irving Kahn, Walter Schloss and Charles Brandes. Warren Buffet was also Benjamin Graham’s student.
In 1929 John Templeton bought share of many companies after the stock market crash. John Templeton was a famous value investor and he went on to gain popularity for investing in global equity markets.
It is known that those who opt for value investing will survive the ups and downs of market and profit in the long term. To be a good value investor you should do your research well. Some points for research are :
- Check what is the price of the entire company. This is called market capitalization. Market capitalization will stop you from overpaying for the stock you wish to purchase.
- Is the company buying back the shares? If the company is buying back the shares, you should go ahead for value investing.
- Go in for value investing if you will buy the shares and keep for some time to come.
The best way to be successful as a value investor is to select a good company, pay as little as possible for its shares, reinvest the dividends into the company and sit back watch the company’s intrinsic value reflect in its share prices and watch your wealth multiply. In the end your sound judgment and analyses will be rewarded.
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