valueinvesting

Value investing is an investment approach that involves selecting securities believed to be priced below their intrinsic value, with the expectation that the market will recognize the true worth over time. Practitioners emphasize a margin of safety, relying on fundamental analysis rather than short-term price movements to protect against errors in valuation.

The strategy originated with Benjamin Graham and David Dodd, who beschreven intrinsic value as the present value of a business’s expected future cash flows, assets, and earnings power. Graham’s approach, described in Security Analysis and The Intelligent Investor, influenced later advocates such as Warren Buffett and Charlie Munger. Over time, value investing has become a core discipline within equity investing and has influenced factor investing and long-hold strategies.

Core principles include calculating intrinsic value, seeking a significant discount to price, and evaluating the quality and sustainability of a company’s earnings and assets. Common metrics used in screening include price-to-earnings, price-to-book, price-to-sales, and free cash flow yield, along with qualitative factors such as competitive moat, management quality, and business durability. Valuation methods often combine discounted cash flow analysis with asset-based or liquidation value considerations.

The typical process involves screening for stocks or assets trading at low multiples, conducting thorough fundamental analysis, estimating intrinsic value, and purchasing with a margin of safety. Investors typically hold for the long term, monitoring for deteriorating fundamentals or changes in the thesis.

Notable practitioners include Benjamin Graham, Warren Buffett, Charlie Munger, and Seth Klarman. Criticisms include dependence on forecasts, potential value traps, and underperformance in growth-dominant markets. Variants include deep value, contrarian value, and value-oriented versions of GARP.