Value investing is the art of appraising the worth of a business and distinguishing it from the price the business is selling for in the market. Warren Buffett said, "Price is what you pay for; Value is what you get."
Benjamin Graham, the father of Value Investing, and Warren Buffett's mentor, extended this concept to the stock market by illustrating the following parable. From Intelligent Investor:
"Imagine that in some private business you own a small share that cost you $1,000. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them.
If you were a prudent investor or a sensible businessman, you would not let Mr. Market's daily communication determine your view of the value of your share ownership in the business. The former is movement in the price of a stock due to psychological sentiment, liquidity issues or other factors. The latter is a "permanent damage" to the franchise of the business due to fundamental factors - such as product obsolescence, permanent changes in market demand for a product, losing market share to a better competitor, changes in the habits of customers, upcoming product substitutes.
For example - try the product, visit the store, read business and trade magazines, or ask friends who are customers of the business. You can go directly to the company's SEC Filing, pick up a chart, news headlines, get analyst's estimates and ratings, earnings history, financial statements and many more. You can also do market research on government web sites and other trade association web sites.
Benjamin Graham, the father of Value Investing, and Warren Buffett's mentor, extended this concept to the stock market by illustrating the following parable. From Intelligent Investor:
"Imagine that in some private business you own a small share that cost you $1,000. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them.
If you were a prudent investor or a sensible businessman, you would not let Mr. Market's daily communication determine your view of the value of your share ownership in the business. The former is movement in the price of a stock due to psychological sentiment, liquidity issues or other factors. The latter is a "permanent damage" to the franchise of the business due to fundamental factors - such as product obsolescence, permanent changes in market demand for a product, losing market share to a better competitor, changes in the habits of customers, upcoming product substitutes.
For example - try the product, visit the store, read business and trade magazines, or ask friends who are customers of the business. You can go directly to the company's SEC Filing, pick up a chart, news headlines, get analyst's estimates and ratings, earnings history, financial statements and many more. You can also do market research on government web sites and other trade association web sites.
