Value investing is not a new idea. In fact, we can trace its origins back to 1928. Probably the most famous proponent is Warren Buffett, who used these principles to become one of the world’s most successful investors.
Value investing involves the fairly simple concept of identifying what a company’s stock is actually worth (rather than its current price), and buying and selling when the two are significantly out of line. A stock that is trading at a price below its intrinsic value obviously presents an opportunity to purchase, while one that is over-priced should be considered for a possible sale.
Market sentiment can artificially inflate or depress that price, without affecting its actual value. Over time however, price should eventually come back in to line with that valuation (assuming that the valuation is done correctly).
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