What Is Value Investing? (#13)

What Is Value Investing?

Value Investing is an investment strategy that has consistently delivered strong returns for disciplined investors over the long run. It was developed by Benjamin Graham, who began shaping the philosophy through his investing career and teaching at Columbia in the 1920s, before formally codifying it in his 1934 book Security Analysis (co-written with David Dodd) — later popularized further through his 1949 book The Intelligent Investor.

→ Related: Warren E. Buffett's Best Pieces of Advice for Investors(#15) — Buffett studied directly under Graham and remains value investing's most famous practitioner.

Think of it like a sale at a mall — when something you want goes on discount, you're inclined to grab it. Value Investing applies the same logic to stocks: it encourages buying shares that are trading at a discount to what they're actually worth. These are known as undervalued stocks.

Some Key Concepts Before You Start

Price vs. Value — these are not the same thing. Price is what you pay; value is what you actually get.

Every company has its own intrinsic value, determined by its financial strength and future growth prospects. A company's share price, on the other hand, is set by the market — and can trade below, above, or right at its intrinsic value at any given time.

→ Related: How to Find the Intrinsic Value of a Share/Stock(#14)

Value investing is built around buying a stock specifically when its market price sits below its intrinsic value.

In value investing, market ups and downs aren't treated as pure risk — they're treated as opportunity. Conventional thinking often frames volatility as inherently risky, but value investors see it differently: those swings are what create undervalued buying opportunities in the first place.

→ Related: Who Decides the Price/Value of Shares in the Share Market?(#4)

Over the long term, a stock's price tends to track its intrinsic value. In the short term, price can drift meaningfully above or below that value — but value investors expect it to eventually correct back toward it.

Example: if a company's intrinsic value is $100 but it's currently trading at $50, the expectation is that the price will eventually rise back toward $100. Conversely, if the same company were trading at $200, the expectation is that it would eventually fall back toward $100.

Calculating a company's intrinsic value is a skill in itself — one worth developing directly rather than skipping.

What it takes: patience, discipline, and the conviction to hold (or buy) when the broader market sentiment says otherwise.

Recommended Reading on Value Investing

The Intelligent Investor by Benjamin Graham remains one of the most influential books ever written on the subject — widely considered essential reading for anyone serious about this approach.

→ Related: Bestest Books to Read on Investing(#66) — for more recommendations beyond this one.

Thanks for reading — let me know if there's a related topic you'd like covered next.

Comments

What Is Share Market? All About Stock/Share Market! [Explained In Easy Words] (#2)

What Is the Share Market? A Complete Beginner's Guide The share market gives ordinary people a way to earn returns without actively working for that money — instead, their capital works on their behalf. Many are drawn to it by the promise of high returns that have turned everyday investors into millionaires over time. Just as many are wary of its downside, having watched others lose significant sums. Every day, thousands of new investors enter the market and begin their investing journey. This guide covers everything you need to know about the share market from an investor's perspective. Jump to any section below: What is the share market? How was it formed? (A brief history) How does it work today? Is it risky? Should you invest? How do you start investing? (Demat and trading accounts) How do you avoid losses, and where can you learn more? Bonus: Stocks vs. shares, and the definition of "securities" What Is the Share Market? Just as a regular ...

What Is Bitcoin Mining? Get Free Bitcoins! (#34)

What Are Options? (In Derivatives!) {From F&O✓} What Is Option Trading? (BASICS!) (#10)

What Are Options (In Derivatives)? What Is Option Trading? Basics Beyond Futures, Forex, Stocks, and Commodities, there's one more major instrument worth understanding: Options . You've likely come across the term through the common shorthand "F&O" (Futures & Options). Options have become one of the most heavily traded derivatives in the world today. Definition of a Derivative A Derivative is a financial instrument that derives its value from an underlying asset. Here's a simple way to picture it: imagine an empty treasure box. The key to that box, on its own, is worth nothing. But if that box holds a million dollars in cash, the key suddenly has real value — a million dollars' worth. The key is the financial instrument. The treasure box (and what's inside it) is the underlying asset. That's the essence of a derivative. There are four types of derivatives: Forwards Futures Options Swaps An Option derives its value from the shares of a s...

What Are Futures (In Derivatives)? Basics Of Futures! (#8)

What Are Futures (In Derivatives)? Basics of Futures There's a lot more you can trade in the share market beyond just company shares — F&O (Futures & Options) , Commodities , and Currencies are all traded too. Today, we're focusing on the basics of Futures. What Is a Derivative? A Future is, at its core, a type of Derivative — so it helps to understand that term first. A Derivative is a financial instrument that derives its value from an underlying asset. Here's a simple way to picture it: imagine an empty treasure box. The key to that box, on its own, is worth nothing. But if that same box now holds a million dollars in cash, the key to it suddenly has real value — a million dollars' worth, in fact. The key is the financial instrument. The cash inside the box is the underlying asset. The key's value comes entirely from what it unlocks — that's the essence of a derivative. There are four types of derivatives: Forwards Futures Options Sw...

Basics Of FMCG! FMCG Stocks! (Small Article!) (#60)

Basics of FMCG: FMCG Stocks What Does FMCG Stand For? FMCG stands for Fast-Moving Consumer Goods. What Kind of Sector Is FMCG? FMCG is one of the largest sectors in the economy. What Do FMCG Companies Make? FMCG companies manufacture relatively inexpensive products — but sell them in very large volumes, which is where the "fast-moving" part of the name comes from. Examples of FMCG Companies FMCG spans categories like food, household goods, and pharmaceuticals. Nestlé is a well-known example of a major FMCG company. How Do FMCG Stocks Perform During Inflation? FMCG stocks tend to hold up comparatively well during periods of high inflation. Even as prices rise, demand for these products stays relatively stable, since they're everyday necessities — people generally can't simply stop buying groceries or household essentials the way they might delay a bigger, non-essential purchase. → Related: How Does a Rise in Inflation Affect the Share Market? (#55) Than...

RSPH Blogs - Finances!

Search This Blog