Investment strategy uncovered: Getting to grips with value investing

Julie Brownlee, Fsp Invest, 26 Aug. 2015

Tags: value investing, what is value investing, value investors, how value investing works, investment strategy, investing,



There are many types of analysis that investors follow. Some stick to one method religiously whilst others use a variety of different techniques.

One investment strategy that can reward you handsomely over the long-term is value investing.

So what exactly is value investing? And how can you apply this strategy?

Read on to find out…



What is value investing?


Value investing is all about buying a company for far less than it is worth. This investment strategy involves a lot of patience and discipline, and it’s certainly not a get-rich-quick way to invest.

You need to practice various techniques to value stocks, buy the best you find and wait. And sometimes you need to hold onto stocks for a very long time.

Value investing is a form of fundamental analysis.


How value investing works


If you want to give value investing a go, you need to scrutinise companies to find out what their intrinsic value is. This involves determining what each part of a business is worth.

Value investors are big fans of financial ratios. They use these to whittle down the companies worth investigating further.

A value investor may start off using ratios like the price earnings ratio and the price to book value ratio. If these are low, a company could warrant a further look.

Value investors tend to focus on unpopular companies, hated by investors. By conducting thorough research and analysis, they hope to find hidden gems.

From this, they invest in the companies that make the grade. Then they wait. Value investors hope that in time the stock market will recognise the value in the company and the share price will reflect this.

When this happens, the share price will start to soar and value investors make a tidy profit along the way. This is the strategy used by Warren Buffett and his mentor Benjamin Graham.

Value investing requires a lot of guts and a lot of patience, but it can be very rewarding.

So there you have it. Getting to grip with value investing.

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