UNDERSTANDING VALUE INVESTING: PROFITS THROUGH DISPARITY
What is Value Investing?
- Value investing involves buying assets like stocks, bonds, or real estate below their intrinsic value, aiming to sell at a profit later.
- Investors believe asset prices will move towards intrinsic value over the long run, offering opportunities for both buying undervalued assets and shorting overvalued ones.
- Benjamin Graham, the father of value investing, laid the foundation, and Warren Buffett is a prominent advocate.
How it Works?
- Based on the premise that an asset’s market price can deviate significantly from its intrinsic value.
For instance:
If a stock’s intrinsic value is ₹100 per share but trades at ₹60, value investors seize the opportunity to buy below intrinsic value.
- Over time, as more investors recognize the gap, the asset’s price rises, allowing value investors to sell for a profit.
Judging Intrinsic Value
- Varying opinions on intrinsic value create opportunities for contrarian investors.
- Value investors seize buying chances during crises with panic selling.
- Value investing emphasizes exploiting price-intrinsic value gaps, unlike growth investing solely focused on earnings growth.