Value Investing – The Role of Stocks
Value Investing, brought to prominence by Warren Buffett and Sir John Templeton, was first introduced in 1934 by Benjamin Graham in his classic text The Intelligent Investor. Graham’s approach to investing was based on the idea that stocks are not lottery tickets, purchased with the hope that an investor will get lucky and make money. Instead, stocks should be seen as small parts of a business that are for sale. A business, if it’s sound, will possess value and with a careful and thorough analysis one can uncover that value. For a money manager, the key to value investing is to utilize fundamental research in an effort to determine what a business is worth, it’s intrinsic value. If the market is placing a value on the business significantly below the appraised or intrinsic value, an opportunity may exist. Value investors always remember that good businesses at high valuations do not necessarily make good investments.