What is Value Investing?

Hi, and welcome to r/ValueInvesting!

Some of you here might be new to the stock market, and hence may only have had a cursory interest to value investing. So, what is it?

If you've ever heard of Warren Buffett (the third richest man in the world), you'll probably have heard that he got to where he is today by observing the discipline of value investing. So what is value investing? It's just one of the many ways to invest in the stock market. You might also have heard of some of these other ways, such as momentum investing, special situation, growth investing, etc.

The difference between value investing and all these other types of investing is that value investing pays utmost attention to the fundamentals of the company. That means that instead of treating stocks like pieces of paper, we treat them like pieces of the underlying company. So if the company makes profits, we as shareholders make money.

This also means that, by and large, we ignore fluctuations in the stock market. Just because a stock goes up or down, doesn't always mean it correlates with a company's profits. You might be surprised to hear that, but it's true.

Here's an example. One of the leading criticisms of Buffett over time was the use of a measurement called 'Beta' to measure risk. 'Beta' simply represents the volatility in the market, i.e. the magnitude of the swings in the stock price (compared to another stock). However, Buffett makes a case against using volatility as a measure of risk. After all, if a company's stock price falls, shouldn't a potential investor assume less risk because he also stands to lose less money from buying the same number of stocks?

It's an interesting argument and there are many others like it in the arena of value investing. You'll see as you go along. When you've had about a year of experience, you can try perusing r/SecurityAnalysis, which is where the more advanced value investors frequent.

In any case, this sub is meant to cultivate an interest in value investors among newcomers and old timers alike. We hope the community is a helpful one and is nice enough to help each other out in learning about this wonderful craft!