What Is Value Investing ?
Value investing refers to the investment approach in which investors buy undervalued stocks and hold for the long term with the aim of making profits in the future. It involves buying stocks or securities that are trading below their book value or true value.
Key Characteristics Of Value Investing
- Intrinsic value or real worth of the stock is estimated
- It involves purchasing securities or stocks that are trading below the true value
- It is a long-term investing strategy that requires patience and discipline
- Investors give focus on stable companies having strong fundamentals and consistent cash flow.
- It ignores short-term market fluctuations
Pros Of Value Investing
Some of the major benefits or advantages of value investing an be pointed out as follows:
1. High Returns Potential
One of the main advantages of value investing is that investors can make substantial gains in the long-term. Investors buy underpriced securities, hold them for the long tie and sell when the market corrects. In this way, they can get huge financial benefit.
2. Less Volatility
It is more stable investing option than growth investing strategy because it is less volatile. Investors buy the stocks of established and profitable companies below the intrinsic value that makes it less risky.
3. Dividend Income
As we know that value stocks are issued by well established, stable and profitable companies that pay regular regular dividend. So, investors can enjoy regular income.
4. Long-Term Wealth Building
It is a long-term strategy and discourages frequent trading. It helps to create wealth in the long run if applied correctly.
Cons Of Value Investing
Some of the major drawbacks or disadvantages of value investing strategy can be highlighted as follows:
1. Difficult To Estimate Intrinsic Value
It requires in-depth study, research and analysis to estimate the actual intrinsic value of the stock. Therefore, it is complex and challenging job for the investors.
2. Opportunity Cost
Value investing gives focus on long-term profit but investors may miss out more profitable short-term investing opportunities.
3. Not Suitable
This investment option is not suitable for investors who want to earn profits in short period of time because it is a long-term strategy so it requires discipline and patience.
4. More Time, Effort And Research
It requires adequate time, research and effort to find out undervalued securities or stocks. Investors need to understand market trends and business model before purchasing the stocks. Therefore, it requires more time and effort.
