What is Value Investing
The greatest investor alive, Warren Buffett $BRK.B , is a value investor. Warren Buffett was bale to return 20% per year while the S&P 500 $SPX500 returned only 10% over the last 6 decades. What exactly is value investing?
Value investing was an investment philosophy first developed by David Dodd and Benjamin Graham in the 1930s and is illustrated in their book, Security Analysis, which is known as the bible of Value investing. For beginner value investors, Benjamin Graham's book The Intelligent Investor is a good place to start.
Value investing is knowing the difference between value and price and buying stocks when they are trading under their intrinsic value. The price is something that you will see on your computer screen and that moves every second but value, this is intrinsic to the business and it is based on its fundamentals.
Finding the intrinsic value of a company really depends on the company. For a bank, book value is very important. But for a company like Apple $AAPL , the brand value also needs to be considered.
You also need to take a margin of safety since you're always going to make mistakes as an investor. To lower the risk of the investment, you, therefore, take a margin of safety.
There are different types of value investors and the main difference between them comes in constructing a portfolio. In 1984, Warren Buffett wrote a letter, the Superinvestors of Graham and Doddsville, where he talks about the different types of Value investors. Some of them have hundreds of stocks in their portfolios. Others have a very concentrated portfolio but they all follow the same principles of value investing.
All value investors, however, do a lot of research. They do their homework. Most investors lose money in the stock although it is a winning game. Beating the market is not easy if you're not willing to put in the work.
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