Value Investing — Investing in Value
What is value investing, how does investing in value work, and how to find undervalued companies. Graham and Buffett's philosophy explained for Polish investors.
What is value investing?
Value investing is a strategy that involves buying stocks of companies whose market price is lower than their intrinsic value. An investor looks for "bargains" — solid companies that the market is temporarily pricing too low.
History and philosophy
The father of value investing is Benjamin Graham, a Columbia University professor and author of "The Intelligent Investor" (1949). His most famous student — Warren Buffett — developed this philosophy further and became one of the richest people in the world.
Key concepts:
- Margin of safety — buy significantly below intrinsic value to have a buffer for valuation errors
- Mr. Market — the market is an emotional partner that offers you prices daily. You don't have to accept them
- Long-term thinking — a company's value reveals itself over years, not days
How to recognize an undervalued company?
Typical indicators:
- P/E (price/earnings) — low compared to industry and history
- P/BV (price/book value) — below 1.0 means the market values the company below its net assets
- EV/EBITDA — low value suggests an attractive price
- Dividend yield — high and stable dividend is often a characteristic of value companies
- Free Cash Flow Yield — high means the company generates a lot of cash relative to its price
Value investing in practice
Advantages
- Historically higher returns than the market in the long term (so-called value premium)
- Lower risk — you buy with a margin of safety
- Less sensitivity to speculative bubbles
Challenges
- Requires patience — undervalued companies can remain undervalued for years
- Risk of "value trap" — a company is cheap because it has real problems
- In the last decade, growth companies have beaten value companies hands down
Value investing and ETFs
You don't have to pick individual companies. Value ETFs exist:
- iShares MSCI World Value — global value companies
- Vanguard Value ETF (VTV) — US value companies
- SPDR MSCI Europe Value — European value companies
For Polish investors, remember that these ETFs typically trade in EUR or USD, so consider currency risk and potential tax implications with Polish tax authorities (KAS).
How Freenance can help
Freenance helps track fundamental indicators of your portfolio and monitor whether your value investments are developing as expected. The comprehensive portfolio view allows you to assess the balance between value and growth strategies.
When analyzing your portfolio in PLN terms, Freenance automatically handles currency conversions and helps you understand your true performance in the Polish market context.
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