ICunity is a multi-asset investment house. Crypto investments are risky and highly volatile. Tax may apply. Understand the risks here.
ICunity is a multi-asset investment house. Crypto investments are risky and highly volatile. Tax may apply. Understand the risks here.
IC Unity is a multi-asset investment house. Crypto investments are risky and highly volatile. Tax may apply. Understand the risks here.
Value investing is the strategy of finding stocks that are trading for less than their intrinsic value – essentially, looking for “dollars selling for fifty cents.”
Core Principle: The market sometimes misprices stocks, creating opportunities to buy quality companies at a discount.
Benjamin Graham, author of “The Intelligent Investor,” developed value investing principles in the 1930s. His most famous student? Warren Buffett.
1. Margin of Safety
This is the cornerstone of value investing. Buy stocks at a significant discount to their intrinsic value to protect against errors in your analysis or unexpected problems.
Example:
2. Intrinsic Value
The true worth of a company based on its fundamentals, not its current market price.
3. Mr. Market
Graham’s allegory of the stock market as an emotional business partner who offers to buy or sell shares at different prices every day, based on his mood. Sometimes he’s optimistic (high prices), sometimes pessimistic (low prices). The value investor takes advantage of Mr. Market’s mood swings.
Value investors use fundamental analysis to evaluate companies. Key metrics include:
Price-to-Earnings Ratio (P/E)
Compares a company’s stock price to its earnings per share.
Formula: P/E Ratio = Stock Price ÷ Earnings Per Share
Value Sign: Lower P/E may indicate better value
Price-to-Book Ratio (P/B)
Compares stock price to the company’s net asset value.
Formula: P/B Ratio = Stock Price ÷ Book Value Per Share
Value Sign: P/B below 1 suggests trading below asset value
Debt-to-Equity Ratio
Measures how much debt a company uses versus shareholder equity.
Value Sign: Lower ratios generally indicate less financial risk
Dividend Yield
As we learned earlier, value stocks often pay dividends.
Warren Buffett
The most famous value investor of all time. His company, Berkshire Hathaway, has delivered phenomenal returns over decades by buying wonderful businesses at fair prices.
Key Buffett Principles:
Value Traps
Stocks that look cheap but are actually cheap for a good reason. The company might be in permanent decline or facing disruptive competition.
How to Avoid Value Traps:
Psychological Challenges
Analyze two companies using value metrics: