Value Investing - An Investment Strategy

Last updated: June 14, 2018

Value Investing - An Investment Strategy

In times when the market has taken a downward turn, and the value of your portfolio declines, do you, like many investors, consider the scenario a “doomsday”, or do you look upon the occasion as a grand buying opportunity?  

If you are in the latter group, you could be considered a “value investor”.   Investopedia defines value investing as ‘an investment strategy where stocks are selected that trade for less than their intrinsic value.  Value investors actively seek stocks they believe the market has undervalued.’

To be considered a value stock, the stock must maintain good business fundamentals, despite falling out of favor with the market.  Some of the factors taken into consideration by professionals in evaluating whether a stock has maintained good business fundamentals, (which makes it therefore, a buying opportunity), are as follows:

1) A company’s assets: Are they intact and still considered valuable to the company’s bottom line?

2) A company’s earnings:  Have earnings shown stability over the last five years?

3) A company’s dividend history:  Are dividends uninterrupted and have dividend increases been posted over the years?

4) What is the overall sector strength of the undervalued stock?

Generally, professionals recommend that larger companies should be considered, since larger companies are usually better equipped to weather a financial downturn than smaller companies.

Allen C. Benello, co-author of “Concentrated Investing Strategies of the World’s Greatest Concentrated Value Investors” may have summed it up best in a 2016 US News & World Report article, https://money.usnews.com/investing/articles/2016-07-27/the-valuable-world-of-value-investing,  wherein he stated “Value investing is a discipline that helps an investor make smaller and less frequent mistakes and having a slightly better hit rate makes a huge difference in long-term returns. “

At all times, value investors need to be patient and diligent to the standards they apply in seeking value stocks to gain the monetary rewards value investing may provide down the line.

Financial professionals suggest that value investing is a long-term investment strategy and should be a part of every conscientious investor’s portfolio as they seek to gain balance from the day to day market swings.  If done right, value investing can offer investors a better margin of safety than an investment posture that is simply trying to “beat the market.”

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