Value Investing
An investment strategy that involves buying securities trading below their estimated intrinsic value.
What is Value Investing?
Value investing is a long-term investment strategy focused on identifying securities trading at a discount to their intrinsic value, with the expectation that the market will eventually recognize and correct the mispricing. Pioneered by Benjamin Graham and popularized by Warren Buffett, the approach relies on fundamental analysis of financial metrics such as the P/E ratio, P/B ratio, free cash flow yield, and earnings quality. A central concept is the margin of safety — buying at a sufficient discount so that errors in valuation do not result in permanent capital loss. Value investing requires patience, as the market may take months or years to revalue a company appropriately.
Example
During the 2008–2009 financial crisis, shares of Wells Fargo fell to single-digit P/E ratios and below book value. Warren Buffett's Berkshire Hathaway purchased additional shares at deeply discounted prices, citing the bank's durable franchise and strong deposit base as evidence of intrinsic value well above the market price. As the financial sector recovered, the investment proved highly profitable — a textbook value-investing outcome.