Value Investing

Investments

Value investing is the strategy of buying stocks or funds trading below their intrinsic value -- finding good businesses at discounted prices and holding until the market recognises their true worth. Popularised by Warren Buffett and Benjamin Graham.

In detail

Key metrics: P/E ratio (lower than industry average = potentially undervalued), P/B ratio (below 1 = trading below net assets), dividend yield, free cash flow. For most retail investors, value-oriented mutual funds (Parag Parikh Flexi Cap, ICICI Pru Value Discovery) give this exposure without individual stock analysis.

Formula

P/E ratio = Market price / Earnings per share P/B ratio = Share price / Book value per share Margin of safety = (Intrinsic value - Market price) / Intrinsic value x 100

Real-life example

🇮🇳 India example

During COVID crash March 2020, Bajaj Finance fell from Rs 4,900 to Rs 1,900. Value investors who bought at Rs 2,000 (P/B 2.5x vs 5-year average 6x) saw it reach Rs 7,000 by 2021 -- 3.5x in 18 months.

Frequently asked questions

Can retail investors practice value investing? ▼

Yes, but it requires studying financial statements. Easier route: invest in value-oriented mutual funds where experienced managers do the stock selection.