What's Value Investing?
Value investing is not about buying stocks that have fallen or priced low. Value investors look for companies that are undervalued by the market. If and when the markets adjust upwards to the true valuation of those companies, value investors will be rewarded.
What are the characteristics of value companies? Value investors look at various aspects of a company such as its cash flow, earnings, book value, and business model, for example:
- D / E ratio < 1
- PEG ratio < 1
- Market Cap < Book Value
- Cash > Market Cap
- Current assets at least 2 times current liabilities
In our next blog post, we will look at the pros and cons of value investing.