NerdWallet: What is value investing, and should you try it? Here’s a guide to the basics.

by | Nov 30, 2022 | Stock Market

This article is reprinted by permission from NerdWallet. The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. Warren Buffett is one of the most successful investors in history.

He once wrote of his strategy: “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” Buffett’s bargain-hunting approach to the stock market is commonly known as value investing — a strategy that investors have been studying and practicing for nearly a century. Despite Buffett’s success, value investing has had a mixed track record in recent decades. Historical data suggests that value stocks lagged behind other kinds of stocks from the 1990s to the late 2010s. But some experts believe that’s changing in today’s rising interest rate environment. See: Warren Buffett’s chip-stock purchase is a classic example of why you want to be ‘greedy only when others are fearful’What is value investing? In simple terms, value investing means buying stocks that you think are worth more than their current market price. In other words, value stocks are companies whose share prices are lower than they “should” be, judging by fundamental financial metrics such as earnings per share. Some value investing strategies involve buying stocks that have fallen out of favor with investors, in the hope that their strong fundamentals will propel a rebound in their share prices. Value stocks are often contrasted with growth stocks, whose appeal is based on rapid increases in earnings or revenue. “Generally, value stocks have better fundamentals than growth stocks,” says Michael Chomiak, an investment manager and financial advisor at Access Wealth in East Hanover, New Jersey. “They’re usually …

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