The term value investing represents a particular strategy through which the selected stocks are merchandised at less than their intrinsic value. There are several value investors who search extensively for those stocks that, according to them, are underestimated or valued less by the financial market.
These investors put their money in such stocks with the trust that the market would go high and these underestimated stocks would provide high yields. These investors firmly believe that the fluctuations in the stock market are temporary and have nothing to do with the long-term value of the selected stocks.Value investing strategies are different for different investors.
There are some investors who are concerned about the present condition of the stock and concentrates on making profits from the present situations. These investors have nothing to do with the future of the stock.
On the other hand, there are groups of investors who are interested in the future of the stocks and invest in the stocks because according to them, the stock is going to perform well in the future. The investment strategies may differ from person to person, but the objective of value investing is same for all the investors.
The prime problem with value investment is that the process of calculating intrinsic value of a stock is not sound totally and there is enough scope of illusion regarding the market value of the certain stock. Because of this, another popular theory “margin of safety” is used to save the investors from potential losses.
Returns from value investment prove that the concept of value investing, introduced by Benjamin Graham and David Dodd, is a successful one. The functioning of the particular strategies related to the value investing has remained under the microscope and several academics of the related field have accepted that these stocks are more worthy than the growth stocks.
Last Updated on : 1st July 2013