Value Investing refers to a philosophy or practice of buying stocks that are fundamentally sound, but the stock price is below its obvious value. There are various indicators that Value Investors use to determine that a company is both sound and the stock price is undervalued. For the Value Investor, perhaps more than any other style of investor, is more concerned with the business and its fundamentals than other influences on the stocks price.
Fundamentals, such as dividends, earnings growth, cash flow, and book value are more critical than market forces on the stocks price. Value investors are generally buy and hold investors. They will hold a stock for long term periods and are not concerned with short term swings in the stock price.
When the Value Investor determines that the fundamentals are sound, but the stock is trading at a price below its obvious value, he or she knows that this is a potential investment candidate. The assumption is that the market has incorrectly undervalued the stock. Conversely, when the market corrects that mistake, the stocks price should increase towards the obvious value point.
How do Value Investors find a...
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