Investing in the stock market can feel confusing, especially because there are so many different ideas and advice out there. One of the most trusted and popular ways to invest is called Value Investing. Many successful investors, like Warren Buffett, Rakesh Jhunjhunwala, Radhakishan Damani have used this method to grow their money over time.
In this blog, we will explain what value investing means, how it works, and how you can use it too — in a simple and clear way.
What Is Value Investing?
Value investing is a method of investing where you look for stocks that are priced lower than their real or “intrinsic” value. In simple terms, value investors try to buy shares when the market undervalues them. They believe these stocks have the potential to grow and reach their true worth over time, offering a good chance for profit.
The main idea behind value investing is to find companies whose stock prices are lower than what their business is actually worth.
For example, a company is really worth ₹100 per share based on its business, profits, and future growth. But right now, the stock market is selling it for only ₹70. A value investor sees this as a great chance to buy the stock at a discount — just like buying a good product on sale. They believe that over time, the price will go up to reflect the company’s true value.
A prominent example of successful value investing in India is Infosys, a leading IT services company. Listed in 1993 with an effective share price of around ₹1, Infosys has grown into a blue-chip stock, currently trading around ₹1,585. Investors with a long-term vision, who recognized the company’s strong fundamentals and future growth potential early on, have earned exceptional returns over the years.
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A Brief History of Value Investing
The concept of value investing has been around for nearly a century. It was introduced in 1934 by Benjamin Graham and David Dodd, who were professors at Columbia Business School. They wrote about it in their book Security Analysis.
They explained that investors should study a company’s financial health carefully. If the stock price is lower than the company’s real value, it could be a smart investment. This helps reduce risk and improve returns.
Warren Buffett, one of the most successful investors in history, was a student of Benjamin Graham. He followed this method and improved it over time. His success made value investing more popular and respected around the world.
Indian value investors like Rakesh Jhunjhunwala, Radhakishan Damani, and Vijay Kedia built their wealth by identifying undervalued stocks (like Titan Company, HDFC Bank, Aegis logistics) and holding them with patience and conviction. Their journey reflects a deep understanding of business fundamentals, disciplined investing, and long-term vision in the volatile Indian market.
How Does Value Investing Work?
Value investing works by focusing on a company’s true financial strength rather than following market hype or trends. Here’s how value investors typically operate:
- Finding Undervalued Stocks: They look for companies whose stock prices are lower than their estimated intrinsic value. This means the market may be temporarily ignoring or undervaluing these companies due to short-term problems or general market conditions.
- Analyzing Financials: Investors study key financial metrics such as revenue, earnings, cash flow, and debt levels to understand the company’s true worth. They also assess the business model and future profitability.
- Buying with a Margin of Safety: A margin of safety means buying a stock at a significant discount to its intrinsic value. This helps protect the investor if things don’t go as planned and reduces the risk of loss.
- Waiting for the Market to Recognize Value: Value investing requires patience. The investor holds onto the stock until the market price reflects the company’s real value or goes even higher.
Advantages of Value Investing
Value investing offers several benefits, especially for investors who prefer a safer and more thoughtful approach:
- Lower Risk: By buying undervalued stocks, investors reduce the chance of paying too much. The margin of safety provides a cushion against market fluctuations or company-specific setbacks.
- Potential for Good Returns: When the market eventually corrects itself, undervalued stocks can rise significantly, generating strong profits for investors.
- Focus on Fundamentals: Value investors concentrate on the company’s actual business performance rather than short-term market noise or speculation.
- Disciplined Investing: This strategy encourages patience and thorough analysis, avoiding impulsive decisions based on market trends.
Also Read: Can ITC’s FMCG Business Deliver In 2025? Margin Recovery Is The Key To Growth
Disadvantages of Value Investing
Like any investment method, value investing has its downsides:
- Long Waiting Period: Stocks may remain undervalued for a long time, and investors need patience to wait for the market to recognize the true value.
- Possibility of Value Traps: Sometimes a stock appears undervalued but continues to decline because of underlying problems the investor missed. This is known as a value trap.
- Requires Deep Analysis: Value investing involves detailed financial research and understanding of businesses, which can be challenging for beginners or casual investors.
Popular Strategies in Value Investing
If you want to apply value investing, here are some common strategies to keep in mind:
- Invest in What You Understand: Focus on industries and companies you know well. Understanding how a business makes money helps you judge its value better.
- Look for Well-Managed Companies: Strong leadership is crucial. Companies with trustworthy and skilled management teams tend to recover faster and perform better in the long run.
- Avoid Following Market Trends Blindly: Just because a stock is popular doesn’t mean it’s a good value. Value investing means buying stocks even when the market is not paying attention.
- Use Key Financial Ratios: Analyze ratios like Price-to-Earnings (P/E), Price-to-Book (P/B), Earnings Before Interest and Taxes (EBIT), and Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) to estimate intrinsic value.
- Keep a Margin of Safety: Always buy stocks below your calculated intrinsic value to reduce risk.
Value Investing vs. Growth Investing
Both value investing and growth investing are popular, but they focus on different types of companies and investment goals.
Also Read: NSE Vs BSE: A Comprehensive Comparison Of India’s Leading Stock Exchanges
Final Thoughts
Value investing remains one of the most respected and proven investment strategies for building wealth over time. It’s based on common sense: buy good companies at a discount, hold on patiently, and sell when the price reaches fair value.
However, it’s not a get-rich-quick scheme. Value investing requires discipline, research, and patience. It’s important to learn how to evaluate companies and understand financial statements. For those willing to put in the effort, value investing offers a thoughtful way to reduce risk and achieve solid long-term returns.
If you want to start investing wisely, consider adopting value investing principles. Over time, this approach can help you grow your money steadily, avoiding the ups and downs of speculative investing.
FAQs
People follow value investing because it focuses on facts and company performance instead of market noise or hype. It’s a safe and smart way to build wealth slowly and steadily.
You can check if a stock is undervalued by looking at financial ratios like Price-to-Earnings (P/E), Price-to-Book (P/B), and comparing the company’s stock price with its real worth (intrinsic value).
Intrinsic value is what a company is truly worth based on its assets, profits, and future growth potential. If the market price is lower than this value, the stock may be a good deal.
A margin of safety means buying a stock at a price much lower than its real value. It gives a cushion in case the financial analysis is wrong or the market stays low for longer than expected.
Value investing is a long-term strategy. You may need to hold the stock for years until the market sees its true value and the price goes up.
Yes, it can be good for beginners if they are willing to learn how to read basic financial statements and avoid emotional decisions. It’s a thoughtful and disciplined approach.
Yes, you can start small. Many value investors begin with a small amount and grow their portfolio over time. The key is to pick good companies at the right price, not the size of your investment.
