Value investing is an investment strategy where you buy stocks that are trading at a price lower than their true (intrinsic) value. The idea is to identify fundamentally strong companies that the market has temporarily undervalued—due to short-term events, negative sentiment, or market overreaction—and invest in them with a long-term perspective.
This strategy was popularised by legendary investors like Benjamin Graham and Warren Buffett.
Key Principles of Value Investing
- Buy Low, Hold Long
Look for quality companies available at a discount to their intrinsic worth and hold them until the market recognises their real value. - Strong Fundamentals
Value investors focus on companies with:- Stable earnings
- Low debt
- Strong cash flows
- Competitive advantages (moats)
- Margin of Safety
You invest only when the price is significantly below the intrinsic value, which reduces risk and increases potential return. - Contrarian Approach
Value investing often involves buying when others are fearful or ignoring a stock—making patience and discipline essential. - Long-Term Mindset
It may take months or years for undervalued stocks to appreciate, so value investors don’t react to market noise or short-term volatility.
Why Value Investing Works
- Markets can misprice stocks in the short term
- Emotion-driven selling creates opportunities
- Quality companies tend to recover strongly once fundamentals assert themselves
Value Investing vs Growth Investing
- Value: Buy undervalued, stable companies at attractive prices
- Growth: Buy high-potential companies expected to grow earnings rapidly
Both have their place, but value investing is preferred by investors seeking stability, strong fundamentals, and long-term wealth creation.
