What determines your investment strategy?
bargains; finding those companies whose stock may be out of favor for one reason or another and whose stock is inexpensive relative to the company’s earnings or assets. Value investors are looking for companies with reasonable balance sheet strength and have little corporate debt but hold the potential for robust earnings increase in the medium to long term. Identifying a company that meets the above criteria is only the first step.
The next step is to determine whether or not a company’s low share price is justified. For instance, can the undervaluation be traced to the fact that the company’s industry or products are currently out of favor? Has the company experienced short- term earnings disappointments? Or is it because of some problem with the company for which there is no immediate or near- term solution? The answer to those questions will determine whether true value exists or not. The value approach is a time tested one and dates back several decades to the works of Benjamin Graham, who is widely regarded as the “father of value investing".
His wisdom still holds true even today and is worth being followed. His book, Security Analysis, co-authored with David Dodd, advocated a fundamental analysis of a company’s balance sheet before deciding to invest. Graham also emphasized the importance of building a “margin of safety" into one’s analysis.
The investor’s aim, he said, should be to “purchase a dollar for 50 cents." It is often said that patience is the key attribute of a value investor. This is because value investing by its very nature means the ability to invest, sit back and wait patiently for one’s thesis to play out, despite short term challenges. Over time, other investors too will draw similar conclusions
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