Value investing
InvestingDefinition
The discipline of buying stocks for less than the underlying business is actually worth. Pioneered by Benjamin Graham in the 1930s, refined by his student Warren Buffett. Value investors ignore stock-price momentum and focus on boring fundamentals: how much cash the company generates, what it owns, and what it owes.
Value has underperformed growth investing for most of the last 15 years, but historically it has won over very long periods. The core principle is 'margin of safety': pay substantially less than the asset is worth, so if your estimate is slightly wrong you still come out ahead.
Value has underperformed growth investing for most of the last 15 years, but historically it has won over very long periods. The core principle is 'margin of safety': pay substantially less than the asset is worth, so if your estimate is slightly wrong you still come out ahead.
Example
In 1988 Buffett bought Coca-Cola at about 15 times earnings when the rest of the market was paying 20 times for similar blue-chip stocks. The combination of a discount price and a durable brand made it one of the greatest trades in investing history.