armember-membership domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home1/wanrru6iyyto/public_html/wp-includes/functions.php on line 6114ARMember domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home1/wanrru6iyyto/public_html/wp-includes/functions.php on line 6114There are multiple definitions of value investing promulgated by different individuals and organizations. There is no authoritative definition; however, there are several intelligent, well thought out, and comprehensive responses. Here are some examples:<\/span><\/p>\n Investopedia<\/strong><\/span> <\/em>– “Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book\u00a0value.\u00a0Value investors actively ferret out stocks they think the stock market is underestimating”.<\/span><\/p>\n Wikipedia<\/strong><\/span><\/em> – “Value investing is an\u00a0investment<\/a>\u00a0paradigm<\/a>\u00a0that involves buying\u00a0securities<\/a> that appear under priced by some form of\u00a0fundamental analysis<\/a>.[1<\/span>]<\/a><\/sup>\u00a0The various forms of value investing derive from the investment philosophy first taught by<\/span>\u00a0Benjamin Graham<\/a><\/span><\/strong>\u00a0and<\/span>\u00a0David Dodd<\/a><\/span><\/strong>\u00a0at<\/span>\u00a0Columbia Business School<\/a>\u00a0<\/strong><\/span>in 1928, and subsequently developed in their 1934 text\u00a0Security Analysis<\/strong>“. <\/a><\/i>Benjamin Graham developed a formula to calculate a stock’s market value as a part of the text.<\/span><\/span><\/p>\n Forbes’<\/span><\/em> Rob Berger<\/strong> – “Value investing is nothing more or less than buying investments on sale”.<\/span><\/p>\n Wharton School of Business<\/strong><\/em><\/span> – As written by Donald B. Keim, PHD in an article written on November 3, 2017,<\/span> Is Value Investing Really in the Doldrums?<\/strong><\/em><\/a><\/span> “In general, value investing looks to buy shares of companies trading lower than their intrinsic values. As such, value investors seek to buy financially solid companies at a discount, …”.<\/span><\/span><\/p>\n The definition of value investing is elusive, more so because it is more of a concept than an actual formula or derivative. It goes beyond just owning stock at a good price, i.e. trading less than intrinsic value; it also refers to selling stock when the market price exceeds a reasonable value for the stock. In effect, value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.<\/strong><\/span> The difference is a gain improving the investor’s wealth. <\/span><\/p>\n Simply stated, the core tenet is ‘BUY LOW, SELL HIGH’.<\/span><\/p>\n Furthermore, value investing relies on four principles for success. It includes risk reduction by investing only in high quality stocks, not just any stock no matter how cheap it appears. Thus, penny and small cap stocks are excluded from a value investor’s selection portfolio. Secondly, select stocks with solid underlying assets; this is referred to as purchasing stocks with intrinsic value. Third, use financial analysis, specifically business ratios and key performance indicators to identify worth and trends. Finally, all value investors must understand timing related to buying and selling stock. The key to timing is patience. By reviewing the historical market price pattern for the respective stock, a value investor gains greater confidence and can determine the best buy and sell points to maximize value.\u00a0<\/span><\/p>\n In business, there are several universally applicable principles called tenets<\/span><\/strong><\/a>. These principles are undeniable and exist in every aspect of business acumen. The most central of all tenets is the buy low, sell high doctrine of business. It is focused on profit, the most desired outcome of all transaction activity for entrepreneurs and business minded individuals. Value investing utilizes the same concept. However, in general, value investing as a term is used related to market investments and not the day-to-day operational decisions made in business. Value investing is most commonly used as a term with the buying and selling of securities, primarily stock.<\/span><\/p>\n The problem with the buy low, sell high definition is that it is inherently flawed. Even when an individual buys something for a low price, it doesn’t mean that the price will rise in the future. There is also risk; primarily that the price will not rise or even rise within in reasonable period of time to receive a good return on one’s investment. Thus, although the core tenet is to buy low and sell high, without adherence to some principles, losses are inevitable. Therefore, the definition for value investing must be refined in scope and include risk reduction.<\/span><\/p>\n Risk reduction with stock only exists with long-lived, well established and well managed companies. Of course, there is one group of companies that fits this definition well; that is the group of 30 most valuable (market capitalization) companies, commonly referred to as the DOW Jones Industrial Companies or DOW for short. The DOW consists of the top 30 large market capitalization companies traded on the exchanges. There are others, but the DOW index is the standard to measure performance against.<\/span><\/p>\n Value investing requires a stricter definition. It means to buy low, sell high with less riskier stock investments. This is achieved by investing in larger, specifically large or mid capitalization stocks. The problem with this concept is that these types of stocks tend to have steady prices and rarely behave in a volatile manner; for that matter, they rarely flucuate more than 10% in any direction in a short period of time. The end result is that it is difficult to find opportunities to buy low and then sell that stock at a higher price. This doesn’t mean it can’t happen, but when it does; the value investor takes advantage of the opportunity.<\/span><\/p>\n To make value investing work, the pool of well-managed companies must be broader in scope. Thus, value investors try to keep their investment to the S&P 500 companies which aggregated is about two-thirds of the entire US Economy. With the most recent list, the #1 company is Apple which also is a DOW company with a market capitalization of almost $2 Trillion. Apache Corporation is number 500 and its market capitalization is around $3.3 Billion. These 500 companies present as potential value investment opportunities because they have good histories behind them; thus, risk is lower than other potential investments.<\/span><\/p>\n Thus far, value investing refers to a process of buying low, selling high with low risk investments. However, this still isn’t a pure definition. Why? Even if you buy low, it still doesn’t reflect the possibility that the stock will go continue to decrease in market price. Therefore, what a value investor is really seeking is to buy quality stock at a low price and it is backed by intrinsically stable value based assets. This acts as insurance to keep the price from continuing to drop or acts as pushback against decreasing market prices.<\/span><\/p>\n Intrinsic value refers to the dollar value of the net underlying assets of a company. Current and fixed assets are commonly considered intrinsic with dollar values, i.e. the market will pay reasonable amounts if the respective assets are sold as individual assets; like selling pieces of a pie. However, there are assets that are not as liquefiable nor as valuable as the recorded value on the books of record for the company. Good examples include intangible assets<\/span><\/strong><\/a> such as development costs, copyrights etc. Markets for these types of assets are not as readily available in comparison to markets to sell inventory or land. In some cases, there is no market for the respective intangible asset. Thus, value investors stay attune to the intrinsic value of their respective investments.<\/span><\/p>\nValue Investing = Buy Low, Sell High<\/span><\/strong><\/h2>\n
Risk Reduction<\/span><\/strong><\/h2>\n
Intrinsic Value<\/span><\/strong><\/h2>\n