Value investing

Value investing is an investment approach that buys securities which appear underpriced when judged by fundamental analysis of the issuing company. Its modern form derives from the philosophy that Benjamin Graham and David Dodd taught at Columbia Business School starting in 1928 and set out in their 1934 text Security Analysis. The early opportunities Graham and Dodd identified were shares trading at a discount to book value or tangible book value, shares with high dividend yields, and shares with low price-to-earnings or price-to-book ratios. The central idea is to buy at less than intrinsic value, and the gap between market price and intrinsic value is what Graham called the margin of safety. Warren Buffett, a leading proponent, extended the idea toward finding an outstanding company at a sensible price instead of an ordinary company at a bargain price. Seth Klarman has described the approach as rooted in a rejection of the efficient-market hypothesis, which holds that securities are accurately priced from all available data. Graham himself did not use the phrase, which was coined later to describe his ideas, and it has sometimes been misread as simply recommending cheap stocks. Academic studies cited in the article have found that value stocks outperform growth stocks over long periods.