Anyone with a basic understanding of economics or business understands what value investing is. If you’re not sure what it is, you’ve come to the correct spot.

Value investing is a method in which investors seek to purchase stocks, commodities, real estate, or other assets for less than their fair market value. Investors can beat the stock market by discovering and investing in firms that sell at a discount to their actual value by concentrating on fundamental company analysis.

In this post, we’ll go over what value investing is and how it differs from growth investment, and an example to aid you in grasping its concept.

What is Value Investing

Value investing is an investment technique that comprises buying stocks that seem to be available at a lower price than their actual value.

Value investors aggressively seek stocks that they believe the stock market is undervalued. They think that the market overreacts to positive and terrible news, resulting in stock price changes unrelated to a company’s long-term fundamentals.

These investors learn to discover an asset’s underlying value and have the patience to wait until they are available at a cheaper rate than its intrinsic value.

Example

Let us give you an example to help you understand the concept of value investing.

Suppose a stock has a price of $200, and you purchase it for $130. You’ll make a $70 profit just by waiting for the stock’s price to increase to its actual value of $200.

Furthermore, the firm may develop and become more profitable, providing you with the opportunity to make more profit. If the stock price climbs to $220, you will profit by $90 since you purchased the shares. If you had paid the total amount of $200, you would have only made a $20 profit.

Value Investing Vs. Growth Investing

The terms value and growth relate to two types of stocks and the investment techniques based on their differences.

Value stocks are firms that are now priced below their actual value and will consequently deliver a greater return. On the other hand, growth stocks are businesses that can outshine the broader market over time due to their future potential.

Value investors pursue stocks that they feel are cheap in the marketplace. In contrast, growth investors prefer firms that they think will provide above-average gains. There are also growing and value mutual funds, which invest in growth and value stocks.

Bottom Line

Value investors are constantly looking for undervalued companies to purchase at a bargain to maximize returns while minimizing risk.

Investors may use a range of methods and methodologies to identify the underlying worth of a stock and whether it is a suitable match for their investment portfolio.

Enroll in our course NOW! and learn the different strategies that value investors use to see if a stock is undervalued.