Value Investing
Candlefocus EditorValue investors actively seek through stocks in the marketplace to find potentially undervalued securities. This implies that value investing requires active fund management and an in-depth analysis of the company’s fundamentals. To this end, value investors examine a company's financial statements, ownership, management and the industry in which it operates. Unlike momentum investors, value investors rarely buy or sell based on the predictions and advice of analysts.
Generally, value investors are long-term investors who look for stocks with attractive margins, excellent return on equity and a steady stream of dividends. They look for stocks that can generate a greater return on their investments than what is currently being accounted for, and they rely on a detailed fundamental analysis and financial statement reading to determine whether a share can meet this criteria.
When purchasing a security, value investors may also look for companies with a wide economic moat. This implies they will look for companies that have certain factors which protect them from competition and make it difficult for competitors to enter the same space.
Value investing reflects the belief that over time the market will recognize the eventual value of an undervalued security and will drive the price up. Value investors are able to recognize that these securities are trading at an attractive price and can thus reap returns that outperform the general market.
In summary, value investing is an investment strategy that involves selecting stocks that appear to be trading below their intrinsic value. Value investors focus on the underlying fundamentals of a company and perform a detailed evaluation of its financial statements, ownership, management and competitive position. This type of investing requires a longer term investing horizon as value investors seek for a long-term strategy. For a well-informed investor, value investing offers considerable potential for greater investment returns over time.