{"id":12049,"date":"2020-10-16T09:03:46","date_gmt":"2020-10-16T09:03:46","guid":{"rendered":"\/blog\/?p=12049"},"modified":"2020-10-16T09:06:52","modified_gmt":"2020-10-16T09:06:52","slug":"everything-you-need-to-know-about-value-investing","status":"publish","type":"post","link":"https:\/\/tata-blog.osian.dev\/blog\/wealth-services\/everything-you-need-to-know-about-value-investing\/","title":{"rendered":"Everything you need to know about Value Investing"},"content":{"rendered":"\n

What is Value Investing? <\/strong><\/h2>\n\n\n\n

An investment strategy that involves\nchoosing to put one\u2019s money into stocks that are trading for less than what one\njudges their intrinsic value to be is known as value investing. These investors\nbelieve that the market overreacts to both bad and good news, which results in\nstock price movements that do not align with the company\u2019s long term\nfundamentals. Hence, a value investor actively seeks out stocks that seem to be\ntrading less than their intrinsic or \u2018book\u2019 value which may be underestimated\nby the market. <\/p>\n\n\n\n

\"Benefits
Source: Slideshare<\/figcaption><\/figure>\n\n\n\n

This overreaction of the market provides\ninvestors with the opportunity to profit by purchasing stocks at discounted\nprices. In short, value investing allows an investor to buy a high quality\nstock on sale. To discover the underrated stocks, a value investor will employ\na range of financial analysis tools and not simply follow the herd by investing\nin popular stocks.<\/p>\n\n\n\n

Additional Read:<\/strong> Growth vs Value Investing:\nChoosing your investment strategy<\/a><\/p>\n\n\n\n

How Does Value Investing Work? <\/strong><\/h2>\n\n\n\n

When it comes to value investing, the basic\nconcept underlying it is quite straightforward. As long as an investor realizes\nthe true value of something, they can save a lot of money by simply buying it\non sale through value investing. Most people would agree that whether or not\nyou purchase a new TV at full price or buy it at one-fourth of the market cost\non sale, you receive the same TV with the exact screen size and image quality. <\/p>\n\n\n\n

Similarly, stocks work such that a company\u2019s\nstock price may change, even if its valuation remains the same. Like TVs,\nstocks go through periods of lower and higher demands, which leads to price\nfluctuations. However, these fluctuations do not change the value you extract\nfrom investing your money into these stocks. Another key comparison here is with\nmutual fund investing. When one starts a SIP in a mutual fund, particularly in\nequity investments as bonds prices do not change as much, they will see the\nprice change as a result of market highs and lows. <\/p>\n\n\n\n

However, long term analysis of\nequity mutual funds has revealed that they eventually grow significantly in\nvalue over time and yield reasonably higher returns than bonds. Akin to this,\nvalue investors seek out individual stocks, as they are certain that their\nmarket price will grow to reflect their inherent value at some point in the\nfuture. The detective work to discover such stocks is not simple and rewards\nare handsome when one is able to discover them. Value investing can be\nincredibly lucrative with Warren Buffet being among the popular figureheads\nthat practice it. <\/p>\n\n\n\n

Additional Read:<\/strong> Equity MFs see the first\nmonthly outflow in 4 years<\/a><\/p>\n\n\n\n

Tools Used to Assess Intrinsic Value<\/strong><\/h2>\n\n\n\n
\"A<\/figure>\n\n\n\n

How can an investor assess the intrinsic\nvalue of a stock? In general, the intrinsic value of a stock is a combination\nof looking at its financial performance, cash flow, profit, revenue, in\naddition to some more fundamental factors like the company\u2019s brand, target\nmarket, business model, and competitive edge. Here are some tools that can help\nwith this assessment.<\/p>\n\n\n\n

\u25cf Price-to-book (P\/B) ratio<\/h3>\n\n\n\n

or the stock’s \u2018book value.\u2019 This tool is a measure of how the company’s assets are valued compared to its current stock price. If the price to the stock is lower than the value of the asset itself, then the stock is likely to be undervalued. Note that a company could be going through a financial hardship which may reflect similar numbers in its price to book ratio. <\/p>\n\n\n\n

\u25cf Price-to-earnings (P\/E) ratio<\/h3>\n\n\n\n

This is an indicator of the track record of the company for its earnings. It helps determine how much the stock price reflects the company\u2019s earnings. When a stock price is not reflective of its gross earnings, it is likely to be undervalued. <\/p>\n\n\n\n

\u25cf Free cash flow<\/h3>\n\n\n\n

This measure is the amount of cash that is generated from a company\u2019s profits and operations once all expenditure costs have been subtracted. The free cash flow of a company includes operating expenses as well as large purchases called capital expenses. This also includes the purchase of new equipment that is meant to be upgraded. A company that has a lot of free cash flow has the luxury of investing this leftover money into the future of the business. This may involve paying dividends to shareholders, paying off company debt, and issuing any buybacks. <\/p>\n\n\n\n

Many other metrics are used as well. Once a\nfull-scale analysis is carried out, the investor can decide whether they want\nto purchase shares at the stock\u2019s comparative value (intrinsic value vs current\nstock price) and whether it is attractive enough to take a risk and invest. <\/p>\n\n\n\n

Conclusion<\/strong><\/h2>\n\n\n\n

Find mutual funds to start high performing SIPs with Tata Capital\u2019s Wealth Management Solutions<\/a>. Tata Capital\u2019s Wealth Management Solutions cover a wide range of products that include stocks, bonds, SIP mutual funds, and more that can help you finance and protect your family or business. <\/p>\n","protected":false},"excerpt":{"rendered":"

An investment strategy that involves choosing to put one\u2019s money into stocks that are trading for less than what one judges their intrinsic value to be is known as value investing. <\/p>\n

Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":12052,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[37],"tags":[],"class_list":["post-12049","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-wealth-services"],"yoast_head":"\nA Complete Guide on Value Investing- Tata Capital Blog<\/title>\n<meta name=\"description\" content=\"What is Value Investing? Here's an in-Depth Guide to Value Investing that will help you start a Value Stocks Portfolio with strategies. 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