Stock Markets Exposed - What is value investing?

What is value investing?

I was reading an interesting article on how Warren Buffett invests: http://www.i-endeavors.com/2008/01/18/buffet-baseball-and-patience/ It talks about value investing. What is value investing? Is it a good way to make money in the stock market?

Public Comments

Warren is a phenom, no one has done what he has done with the stock market. Value investing means to put your money where it counts and not just where it looks good. Research and know your picks have every opportunity to do well instead of investing in what everyone else is investing in. Read some books about him and if you haven't read it yet, get a copy of Rich Dad, Poor Dad. It is a great read.
To not be too technical, value investing is simply the act of buying a Company that is undervalued (or perhaps trading at a discount) given the current price it trades at. There are a variety of ways to spot a company that is currently undervalued by the public markets. Here's an example of one of Warren Buffet's investments. If you don't know who he is, he is one of the greatest value investors ever and is among the top 10 wealthiest people. He invested in Coke because he saw that the Coke brand was truly worth more than it was getting credit for, that it wasn't being properly reflected in the perceived value of the Company (which was the current stock price). He felt the Company deserved to be valued more highly and he invested in it. Needless to say, he was correct and made a pretty penny from his investment. The concepts around value investing should be used in any of your investments. Buy a stock when it is undervalued/cheap to where it should be valued at. By buying when its cheap, you minimize your downside risk, and increase the upside. If you want to read the bible to value investing, read the "Intelligent Investor" by Ben Graham (the guy that taught Mr. Buffet how to invest). You will need to fully understand the basic concepts of investing first though, so start with a beginner/intro to investing book.
value investing to me is an art. it requires you to have capability to forsee the future. you should have the instinct/information to judge that though the share price is quoting lower (discount) at present it will rise in the future. and on that judgement you decide to buy the share and that is called value investing. value investing doesnot mean buying stocks that are cheaper but stocks that hold value(ability to rise) in future. and yes it is good to be in stock market till you are a disciplined trader
First, Warren Buffett's results can't be duplicated by the average person because he controls a conglomerate which can buy entire companies and then run them as divisions of Berkshire Hathaway. He is not a pure stock market trader. Direct answer to your question: Value investing is the practice of buying stock that is cheap because it is out of favor at the moment. Profit is made when the stock becomes popular again, at some time in the distant future, and is sold. The other choice is "growth" investing, which involves buying stock in a company that is growing and increasing earnings. Profit is made when the growth continues in the future and shareholders get their share of future earnings.
Value investing is buying stock at a discount to it's liquidating value. If everything is sold by a company and it stock was worth $10.00 for example, this is liquidating value. only buy a stock when it trades at 2/3's of this value. so in this instance, you will buy a stock at $6.70. You believe that the market is undervalueing this stock and as such it a a bargain. this is the gist of value investing, buy a valuable stock at bargain prices. Finally, this discount being $3.30 is known as your margin of safety. very important concept in value investing. this is known as conservative investing. this means a focus on avoiding risk and not losing what you have. Finally, this margin of safety allows for mistakes. if a stock is worth $10.00 and you bought it at $6.70, but it goes down in value, this spread still gives you a chance to profit, while everyone else loses. that's the whole point of margin of safety. I realize this is a simplified example, but I hope you get the point. For further reading purchase, The Intelligent Investor by Benjamin Graham. He was Warren Buffets teacher.