Value Investing is a strategy of applying a targeted selection of shares of undervalued companies to achieve superior returns.
To find these undervalued stocks or companies, use is made of this particular fundamental analysis called value investing.
Benjamin Graham is the founder of value investing. Even today, his book ‘Security Analysis’ is considered to be the “Bible” for traditional value investors. The methods of value-oriented investing make use of the analysis of corporate data, specifically amongst others the current and past book value and return on invested capital, earnings per share, sales and cash flow.
Due to the consistent application of value investing since 1965, success can be seen within his company ‘Berkshire Hathaway’ as follows:
In the recent years, Phil Town has divulged a value investing strategy reduced to its bottom goal. Here you will find his bestseller:
Value Investing deals with looking for undervalued companies that have excellent corporate data and business models and have the highest possible competitive advantages.
In the analysis, the future profitability relative to the current valuation of the company is set (analysis of the intrinsic value). If the current price is traded at a significant discount to the intrinsic value of the company, it will take a disciplined value investor with the intension of buying a company’s share.
This discount is necessary so that the so-called ‘margin of safety’ can be ensured, i.e. the necessary financial security clearance for an investment. In our analysis this is generally 50%. The safety margin is the central investment concept for value investing. We therefore buy, for example, $ 1 for 50 Cent.
It is a fact that today in the stock market, more than ever, the psychology and computer-aided calculation models with automated buy and sell orders dictate work day life. Thus it is possible by determining the intrinsic value of a company and by keeping the safety margin to mitigate potential losses.
This fundamental analysis with keeping the ‘Margin of Safety’ consistent, is the basic idea of value investing.
If desired, you can connect this special and profound fundamental analysis with the modern technical analysis and have the two most important areas of equity research cover for your investment decision.