Value Investing

Value Investing (English " value-based Equip " ) is an investment strategy, be taken in the purchase and sale decisions for securities solely with reference to their real economic value, the intrinsic value of the so-called (English intrinsic value ).

Expiration

The investor will first attempt to determine this intrinsic value that paper, usually by means of fundamental analysis. He then takes advantage of temporary inefficiencies in the financial markets in the pricing of those securities by at low prices targeted buys in his view, and optionally sold well targeted again at too high prices. The stated aim of the strategy lies in the avoidance of losses and unrealistically low returns on capital employed. As a wanted side effect ask yourself, as a rule for each class than-average yields a.

As a basis for the intrinsic value of a security may, depending on the asset class and situation are the substance or liquidation value, earning power or the real economic growth. However, the determination of the net asset value is subject to certain difficulties, which usually allows only a rough estimate. That lack of precision of the declared value investor is buying a security is adequate distance between the price and the estimated intrinsic value, the so-called safety margin (English: Margin of Safety ). Because the lower the purchase price to the intrinsic value, the lower the risk of the investment is losing money.

Formation

As a founding father of value investing is considered the American intellectuals Benjamin Graham with his 1934 published book Security Analysis, which is still considered the "Bible " or the "Old Testament " of value investing. More recently, however, play increasingly more subjective factors play a role, as they have been postulated mainly by Philip Fisher. These include the robustness of the business model, the quality of management and possible competitive advantages of the company.

The best known representative and at the same time advocate of value investing strategy is one of Graham's students, the U.S. billionaire Warren Buffett, who has brought it with this strategy (2012 ), the third richest man in the world.

Benjamin Graham (1894-1976) wrote his influential 1949 book " The Intelligent Investor " the Warren Buffett as " by far the best book ever written for investors " refers to. It influenced alongside Warren Buffett and John Templeton, Philip Fisher, Peter Lynch and Amit Ayare. In Graham's first book " Security Analysis" by 1934, he becomes the first clear one on the fundamental difference between investment and speculation. In addition, Graham claimed early on that stock markets do not always function efficiently and more can be strongly influenced by human psychology in the short term. So if you buy shares, you should behave as if you would contribute towards a company, an entrepreneurial spirit and be dazzled not only from rising prices.

Methods and procedures of value investors

Basically you can say that the momentum investing ( Investing in stocks with above-average performance ) is oriented in what is currently popular on the exchange. In contrast, the philosophy of value investing oriented more about what is currently gone out of fashion. Although the name value investor thus already suggesting a specific investment approach, the most successful " value investors " have adopted very early by the categorical system thinking. Key is the correct assessment of individual companies and their valuation, but not in what asset class they are. It is the system of Business Perspective Investing, of investing in the economic outlook of a company. At the Value Investing deals concretely with the search for undervalued companies. In addition, a company should have an outstanding business model and if possible have high competitive advantages. At this point, value investing is similar to the Quality Investing. A Quality - investor buys a company, because it is an excellent company and also has an attractive valuation levels. For value investors, however, the valuation of the company is in the foreground. For this reason, it is enough value investors not only really look good companies, and then to buy. If you have found in a first step an interesting company, in a second step its future profitability is set in relation to the current valuation of the company. Only if the current price is listed at a significant discount to the intrinsic value of the company, a disciplined value investor is involved. This discount is the so-called " margin of safety ", ie the safety margin for an investment. Depending on the personal orientation of the investor it is up to 50 %, in rare cases, more. The safety margin is the central plant concept in value investing.

If you look at investments in the capital market and in the stock market as an entrepreneurial participation, rather than to imagine a casino, you will, as the representatives of value investing, long-term increase his chances and reduce the potential for loss significantly. This - the difference between investment and speculation - is basic idea of value investing.