What Is Value Investing?

The principles of Value Investing were first taught by Benjamin Graham and David Dodd at Columbia University in 1928. Value Investing is purchasing stocks that appear underpriced based upon historical performance and the prices of the nearest competitors. An investor researches a company, calculates an intrinsic value of the company, and purchases the stock if that stock is undervalued by an acceptable margin. Value Investors call this threshold the Margin of Safety.

ValueMyStock recommends only purchasing stocks that have a 30% or greater margin of safety, meaning the stock is currently selling for at least 30% less than it’s intrinsic value. The investor holds the stock until the price climbs to the intrinsic value. A stock will constantly move toward equilibrium, or it’s intrinsic value, as the market buys when it is undervalued and sells when it is overvalued.

Value Investing can be applied to any company in any industry. Value Investing as a concept has remained virtually unchanged since 1928, yet Value Investing as a practice has changed immensely. The Internet has changed the speed and delivery of information, and investors have many tools at their disposal from which to make wise investing decisions. ValueMyStock harnesses the advantages of technology by collecting the data and automating the calculations that previously took hours of an investor’s time.

“All intelligent investing is value investing – acquiring more than you are paying for. You must value the business in order to value the stock.” -Charlie Munger, Vice-Chairman of Berkshire Hathaway

Does Value Investing Work?

Market and academic studies have tested Value Investing against the market and other trading methods. Value Investing consistently generates greater long-term returns than any other method – we just do not hear about it much because it is not considered a “glamorous” trading method (read: not a fad). Value Investing often means going against conventional wisdom and popular trading methods. Value Investors pay little attention to external matters, such as quarterly earnings projections, price momentum, market volatility or day-to-day prices.

An investor’s success depends on knowledge, patience and correct action. ValueMyStock helps investors decide on the correct action, but each investor’s success will depend on their own patience. Trust your valuation and continue to hold your undervalued stock until it reaches intrinsic value, ignoring the day-to-day fluctuations in price.