A value investor is someone who specializes in buying stock believed to be undervalued, according to metrics for assessing value used by the investor. Value investing as a concept was developed in the United States in the 1920s and has since spread all over the world. It is used by people in a wide variety of settings, employing an assortment of rubrics for determining value and making decisions about investments. This particular investment strategy can be risky, as it hinges on many unknowns, but some very notable investors use this approach, including Warren Buffet.
The logic behind value investing is that the market often overreacts to emerging situations, causing some stocks to be overvalued, while others become undervalued. Picking up stocks for less than they are worth and hanging on to them until the market corrects allows the value investor to turn a profit. In some cases, they may retain their investments in the long term, taking advantage of dividends and other benefits available to stockholders.
The challenge in value investing is deciding how to value stock. A value investor may look solely at a company's current stated assets and liabilities to get a literal sense of how much the company is worth at a given time. Other investors think about projected earnings and the future direction of the market in order to get more theoretical about value. A company might have, for example, limited assets, but be projected to perform very well in coming years, making it a potentially good choice for a value investor.
Trading in undervalued stocks requires a keen eye for the stock market, allowing people to identify deals and act on them at the appropriate time. If the value investor waits too long to buy, the price can start to trend back up, cutting into profits. Conversely, an investor who makes an unwise move and invests heavily may take a loss as a seemingly undervalued stock turns out to be valued entirely appropriately. Timing the sale of stocks is also tricky, as the value investor wants to turn the best profit possible on the sale.
Numerous guidelines are available for prospective value investors. They provide information about how to estimate stock values and move on the stock market to support a value investing scheme. Financial publications aimed at value investors provide information about trends in the market, new economic theories, and other matters of potential interest to people developing and implementing investment strategies.
