Introduction to Value Investing

What is Value Investing?

Value investing is an investment strategy that involves buying stocks that appear to be trading for less than their intrinsic or book value. Value investors actively seek out companies they believe the market has undervalued.

The core principle is simple: buy quality companies at a discount to their true worth, then hold them for the long term as the market recognizes their value.

Why Value Investing Works

Value investing works because markets are often inefficient in the short term. Emotional reactions, market sentiment, and temporary business challenges can cause quality companies to trade below their intrinsic value.

Over time, the market tends to correct these mispricings, rewarding patient investors who bought when others were selling.

Time Horizon Expectations

Value investing requires patience. Unlike day trading or momentum strategies, value investing is a long-term approach. Typical holding periods range from 3-10 years or longer.

The goal is not quick profits, but sustainable wealth building through compounding returns and business growth over time.

Intrinsic Value vs. Market Value

Intrinsic Value: The true, underlying value of a company based on its fundamentals, cash flows, assets, and growth prospects. This is what the company is actually worth.

Market Value: The current price at which a stock trades in the market. This is often influenced by emotions, news, and short-term factors that may not reflect the company's true worth.

Value investors seek to buy when market value is significantly below intrinsic value, providing a "margin of safety."