A look at value investing

Value investing involves buying securities whose shares appear under-priced. Warren Buffett is a notable proponent of value investing. Buffett focuses on "finding an outstanding company at a sensible price." His strategy is important because you are actually buying into a business, not just generic companies at a small price.

Value strategies
Value investing is a proven, successful investment strategy. Value investing is examined by the performance of value strategies. If you are buying low PE ratio stocks, low price-to-cash-flow stocks, or low price-to-book ratio stocks, they are considered to be value stocks that outperform growth stocks and the market as a whole.

Value Investors
The other way value investing is examined is to examine the performance of well-know value investors. Well known investors include people like Warren Buffett and Benjamin Graham.

Value investing basically consists of three things. Below, we will look at the three main points of value investing:

The first part is understanding which markets are efficient. When you sell a stock, someone else is buying it and when you are buying a stock, someone else is selling it. This is basic knowledge, now the part you need to understand is if you are the one buying or selling the right stock. You should have a good stock broker who understands this and helps you stay on the right side of the trade. The philosophy behind value investing is not only getting stock at a low price, but looking for stocks that are obscure. Value investors are known for investing in ugly, traded-down, cheap, boring stocks instead of respectable, prominent stocks.

The second part is having good technology for valuing what you are buying. You want technology that will show you all available information so you can cross-correlate the asset values with the earnings-power values. Start by looking at the stocks' current asset value and then look at its current earnings.

The third part to value investing is discipline and patience. Most people who are value investors do not panic when the market drops, instead they continue to buy and sell when the stock is back on its way up.

A wonderful example of value investing was given by Warren Buffett, he stated that "the nice thing about investing is that every day the pitcher throws you a ball and you don't have to swing." Value investors need to be disciplined in their strategy and "wait for the pitch and hit it out of the ballpark."

Value investors do not believe that the stock market prices can be predicted. They believe that you can predict the performance of businesses over periods of time, based on past performance and current performance. This information is analyzed and value investors use it to ascertain value. Many people look at value investing as a state of mind because you habitually value the stock based on the value of the underlying business.

Remember that value investing is about three things: a search strategy (this is the low P/E, low market-to-book investing, etc.), a valuation strategy, and a discipline approach. Value investing can be a large part of your financial investment strategy.

Here are three tips to keep in mind:
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• Measure the true value of a stock by following the past and current performance of a company, rather than market predictions.


• - Invest in companies that you understand instead of companies that are predicted to be profitable or are popular at the moment.


• - Have patience. Don't dump the stock the second the market drops, wait it out and sell when it is back on the rise.

Like Warren Buffett states, wait for your perfect pitch before you hit the ball!