What Is Value Investing?Summary: Value investing is widely regarded as the most successful investment approach. In large part, this relates to the long track-record that is available for scrutiny by some of the best minds in investment history. Whether it is for you or not, it is worth gaining an understanding in the logic and methods. The pages of this section of the site relate to value investing. Depending upon how you view this approach to picking winners on the stock market, it is either a philosophy or a religion! Value investing is the art of buying assets for less than their intrinsic value. This means that whilst you may pay $1 in the market, the actual underlying value of property, cash and other assets may be $1.50 or $2. At least that is the theory. In times of high asset prices and rising markets, genuine value can be hard to find. The theory, which is sometimes also referred to as contrarian, was championed by Benjamin Graham. In his book, The Intelligent Investor, Graham covers the subject and working methods in some depth. However, Graham has long since passed away and the early versions of the book are literally decades old. Your author's copy is from the fourth revision which was carried out in 1973. Click Here To Learn The Warren Buffett System
For obvious reasons, there are elements of the book which seem no longer relevant. The advance of computing power makes stock analysis far more accessable to the masses than in Graham's time. Still, the impact of Graham's work is arguably as long lasting and important as that of Ralph Elliott and his wave theory. But that could be a mistake to presume that it is all out of date. Ultimately, this is a mindset of waiting, pouncing and then waiting some more. It is a very professional approach suitable for strong charachters and contrarian minds. Having a very good source of income helps too, since the last thing that a practitoner will want to do is to be forced into selling his holdings at the wrong time because of personal financial needs. Financial legislation has also moved on meaning that an investor should be less in fear of a management team that 'cooks the books', though modern investors may utter the words 'Enron', 'Bre-X' or 'Hollinger' in response. Spotting unreliable accounting information was something that Graham specialised in, but what few regulations and accountancy standards there were were poorly applied in his time. This balance sheet analysis - something that was a new concept in the stock market when he started practicing it - put Ben Graham well ahead of the pack of investors that he was competing with in the market. As might be imagined though, in times without analyst reports and 'market colour', it took painstaking hours of research to find a company whose fundamentals appeared to fit the selection criteria being used. Then, the company had to be selling at a price he found attractive - that might take months or years of waiting for an opportunity. In short, value investing requires the investor to be hard working, patient, careful, of strong mind and deep pocket! It is not for everyone... The following pages will take a brief tour of the analysis and thinking required to become successful using this approach:
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