What is Value Investing?
Buying stocks trading below their estimated intrinsic value.
Formal Definition
Value investing, pioneered by Benjamin Graham and popularized by Warren Buffett, seeks stocks priced below their intrinsic worth based on fundamentals such as cash flow, book value, dividends, and earnings power. Practitioners demand a margin of safety, buying only when the discount to fair value is large enough to absorb estimation error.
In Simple Terms
It means buying good companies when they are on sale, paying less than what the business is really worth. The idea is that the market eventually recognizes the true value and the price catches up.
Example
If a company is estimated to be worth $100 per share based on discounted cash flow but trades at $70, a value investor sees a 30% margin of safety.