The current market scenario, which is induced by the outbreak and spread of coronavirus across the world, has resulted in stock markets falling across the globe. This has paved the way for investors deliberating on value investing. We have covered the following in this article:
Value investing is a strategy of investment which consists of choosing those stocks that appear to have their current stock value much lesser than the book or intrinsic value. Investors ought to value investing hunt for these undervalued stocks. The value investors have a strong belief that the stock prices are affected much more than they should have due to the movement.
This change in the price will not have a long-term bearing on the company as they will start performing well in the coming days. When that happens, the stock price will shoot up, giving investors with excellent returns. The overreaction of the share price will provide a good opportunity for investors to pile up value stocks.
The primary idea of value investing in simple and straightforward. If a value investor is of the opinion that a particular stock is undervalued due to the market movements, then they will invest in it without a second thought. This is because the share price is lesser when compared to the company’s fundamentals and plans. They go on to accumulate these stocks and hold them for a long period to make good profits.
Let’s understand this with an example. When there is a sale on a popular online platform, people will rush to buy the best mobile phone as they know that they are going to get it at a discounted price. It doesn’t matter if you are going to buy the phone at a discounted price or full price, the phone would have the same features and would be of the same quality. It makes sense to buy the phone at the discounted price as you know that the actual price of the phone is much more than what you have paid. Similarly, it makes sense to buy stocks at a much lower price.
The fact that the company’s fundamentals are strong and have excellent plans, the investors are going to get the value for their money in the long run. Therefore, value investing is a process of finding out stocks that are undervalued and buying them at a much lower price and holding them until they gain and provide excellent returns.
|Value Investing||Growth Investing|
|Investing in stocks that have the potential to offer high returns in future.||Investing in stocks that have a track record of providing higher returns than benchmark.|
|Picking up stocks at a discounted price.||Stocks are picked up at a slightly higher price.|
|Investors assume the low risk.||Investors assume slightly higher risk.|
Value investing is an excellent investment strategy. It involves picking up stocks at a much lower price and staying invested over the long-term to reap benefits. This needs market knowledge and the ability to analyse the fundamentals of the company and its profitability in future.