Value Investing

🧭 Background & Context Value investing is based on fundamental analysis, in which the intrinsic value of a company is determined independently of the current market price. The core idea comes from Benjamin Graham and David Dodd: you only buy stocks whose price is significantly below this intrinsic value in order to obtain a margin of safety. This approach ignores short-term market fluctuations and speculative trends, as it relies on long-term metrics such as earnings, cash flow, and balance sheet strength. The economic context lies in market inefficiency: prices often deviate irrationally from the underlying value, for example due to panic, hype, or herd behavior. Value investors systematically exploit these mispricings by identifying undervalued quality stocks and holding them until the market recognizes their true worth. Historically, this strategy has generated excess returns over the broader market for decades, making it particularly attractive to patient investors. For private investors, value investing is significant because it offers a disciplined, emotion-free investment strategy that does not require constant market timing. It reduces the risk of poor purchases during overheated phases and forces thorough company analysis, which lessens reliance on analyst forecasts. However, it requires time 🔍 How It Works in Detail In value investing, you look for stocks that cost less on the stock exchange than the company is actually worth. You compare the current price with the intrinsic value, which you calculate from figures such as earnings, assets, or cash flow. If the price is significantly below that, you buy – hoping that the market will eventually correct the error. The core is patience: you don’t buy because the stock is rising, but because it is cheap. You often hold the position for years until the price reaches its true value. In doing so, you ignore short-term price fluctuations and focus on the fundamentals of the business. An important trick is the margin of safety: you only buy when the price is at least 30 to 50 pe …