There are many different strategies being employed by many people when it comes to trading and investing. In the stock market, investors employ many different means in order to pick stocks that offer some potential gains in the future, or even in the immediate present. One of those strategies that some may employ is value investing.

What is it?

Value investing is a common stock picking strategy that may probably have been developed sometime in the 1930’s. Its initial framework may have been developed by Benjamin Graham and David Todd, both who were finance professors at Columbia University.

The concept behind the use of the value investing strategy is relatively simple. It aims to find stocks of companies that may be considered as being traded well below their inherent worth. When picking stocks, the value investor usually looks for stocks that are known for their strong fundamentals. Value investors look into a stock’s earnings, dividends, cash flow as well as book value and then compare it to its current selling price to determine if it comes at a bargain compared to its inherent worth.

Undervalued Stocks With Potential

What value investors are always on the lookout for are stocks that they consider to be undervalued in the market. Some companies with strong fundamentals may not necessarily show a similar relative worth in terms of their stock price. This is what value investors are on the look out for.

But in value investing, it is not necessarily buying stocks of strong companies with declining stocks that have become quite cheap to have. The current quality and situation of the company is also being looked into before value investors take the plunge. This requires some intensive homework on the company and how it is currently doing.

Buying A Business, Not Stocks

In value investing, the main focus is always on the strength on the company and on its business. Value investors do not necessarily depend on stock price changes for their stock picks. Their decisions are based on investing in quality companies that show its worth by virtue of its performance in the type of business or industry it belongs to. Value investors do not usually pay attention on the day to day market volatility that the company stocks may be experiencing. Focus on the business stability of the company overcomes whatever price changes its stock goes through from day to day.