The key to value investing, sources say, is knowing what a company is truly worth.

What is Value Investing?

Value investing is an investment strategy whereby investors seek stocks that are typically priced lower than what their market indicates they should be. For instance, an investor who knows Company Z has a reputable, long term history with good returns buys their stock because it is currently running lower in price than what he believes the real value of the stock is worth. This is value investing.

Strategies

The trick to value investing, most experts claim, is knowing how to detect actual company value beyond the figures on the financial report or the current cost of the company’s shares. As most people know, a number of major companies have been charged with illegal activity in recent years for controversial business scandals, or essentially “cooking the books.” They have made themselves out to look more valuable than what they really are in order to avoid huge losses from shareholders jumping ship.

Value investors actively pursue companies whose stock they believe will rebound in the long term. This aspect of value investing is strikingly different from other shorter term and riskier strategies, such as market timing, market trends and buy low, sell high strategies.

By drilling down deeper into a company’s history, stock market presence, business model and leadership personality, along with goods and services offered and profit margins, value investors often depend on their own research as opposed to the trend of markets. There is also the peek taken at a company’s intangible assets, the things that cannot be measured or made into a value, that often attract value investors. Long term opportunities to hold a reputable company’s stock is an attractive investment option for value investors.

Risks

As with most investments, value investors have elements of risk associated with their business. The most well known value investor, Warren Buffet, has certainly made a name and fortune for himself with this style of investing, however, there are hundreds of investors who regularly try and follow his role in the goal of making the right investment decisions.

Because value investments are more intended for the long term, there can be a significant risk that a company’s share value will never rise to the level that the investor believes is its real worth.

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