Value Investing

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Definition of 'Value Investing'

Value investing is an investment paradigm that (generally) involves buying securities whose shares appear underpriced by some form of fundamental analysis. Examples are companies that:
  • Trade at discounts to book value or tangible book value.
  • Have high dividend yields.
  • Have low price-to-earning multiples.
  • Have low price-to-book ratios.
Value investing comes from the work that Ben Graham and David Dodd began teaching at Columbia Business School in 1928. They continued and refined this in their Security Analysis publication.

Berkshire Hathaway chairman Warren Buffett is a strong advocate of value investing. He has argued that the essence of value investing is to buy stocks at less than their intrinsic value. The discount of the market price to the intrinsic value is what Benjamin Graham called the "margin of safety".

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