Developed by Benjamin Graham and David Dodd over a century ago, value investing is an approach that essentially involves buying a company at a price lower than its intrinsic value, and selling it when it when the price reaches this value. Since markets can be irrational, this offers plenty of opportunity for investors to pick out stocks that are trading at values lower than they're worth. This intrinsic value is calculated by looking at the company's fundamentals. The idea is to identify quality companies and hold on to them for the long term. Some key metrics used to analyse companies with this objective include free cash flow, the price-to-earnings ratio, and the price-to-book ratio, among others.
Though this sounds simple enough, most people still struggle to actually practise value investing. So does this mean that value investing has its limitations? Or is there something wrong with the way people implement these principles? And how do you avoid these shortcomings and succeed as a value investor?
Join us in the next webinar of Value Investing in which we will look at why so many value investors fail and how you can succeed. Register now!