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How to Be a Value Investor

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How to Be a Value Investor

Essential Guides to Today's Most Popular Investment Strategies

McGraw-Hill,

15 min read
10 take-aways
Text available

What's inside?

Stock Market 101 for investors who are patient and thorough, those tortoises who often win the race.

Editorial Rating

6

Qualities

  • Applicable

Recommendation

Lisa Holton describes the way value investors find bargain stocks. She looks at a variety of financial formulas that can help you unearth good deals. This is a useful primer for investors, since it offers clear explanations of financial ratios. The book includes plenty of specific examples of ways to apply formulas to a company’s financial statements. She clearly describes the contents of SEC documents and offers helpful advice about when to sell a stock. getAbstract recommends this book for beginner to intermediate investors, for those unfamiliar with "value investing," and for those interested in basic portfolio planning. This book focuses on the United States stock market and may be less useful in other countries.

Summary

Value investors buy a stock for less than they think it’s worth. Benjamin Graham, who died in 1976, created value investing theory. He outlined his strategies in two books, Security Analysis and The Intelligent Investor. According to Graham’s theory, a value stock is one whose price has sunk almost to the worth of the company’s assets. But Graham also told investors to look at a company’s price-to-earnings ratio, financial strength, and earnings outlook. Value investors often buy stock in established companies that have been hurt by bad news. Since working out such problems takes time, value investors must be patient. They typically hold a stock for two to five years before selling.

Value investors use a variety of strategies and indicators to pick companies. For instance, David Katz, chief investment officer of the Matrix/LMH Value Fund, targets companies with well-known brands and strong market share, but with troubled stocks. Katz bought Eastman Kodak in 1997, when its PE ratio was 14. Katz reasoned that the company’s brand name and 68 percent market share made it ripe for a turnaround. By the end of 1998, Eastman Kodak’s PE ratio had shot to 62. Katz also looks for strong...

About the Author

Lisa Holton is a business writer whose work has appeared in the Chicago Tribune and Better Homes and Gardens. She is the former business editor of the Chicago Sun-Times and a board member of the Society of American Business Editors and Writers.

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