Value Investment

Value Investment: The term Value Investment refers to the strategy of choosing and investing in stocks that are perceived to be undervalued, that is, stocks which trade for less than their intrinsic value. Value investing allows an opportunity for the investor to earn greater returns by identifying and buying a stock when the price is deflated. Generally, value investors invest in stocks that have a low PE (Price to Earnings) ratio, and/or have high dividend yields.

One of the biggest hurdles for value investors is estimating the intrinsic value of the stock. Intrinsic value is the estimation of the price of a security through fundamental analysis, without taking into account the current value of the share, which is , thus, open to different interpretations by different investors. This leads us to another fundamental concept to value investing, the margin of safety. This basically means buying an undervalued stock at a big enough discount to allow for market fluctuations or errors in the value estimation of the security.

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Edited and Updated 08th March 2014

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