After years of growth investing being the “hot” investment strategy, especially during the long bull market, value investing is shining once again. While growth investing focuses on companies that are believed to be in the early stages of considerable earnings growth, value investing concentrates on stocks that are temporarily out of favor with investors on Wall Street and are believed to be undervalued by the market.
A more conservative approach than growth investing, value investors tend to approach investing with a long-term perspective. Where a growth stock may take off rather quickly due to the latest market trend, value stocks follow fundamentals, not fads. By focusing on the big picture, value investors must put market volatility and daily news headlines in perspective.
Typical characteristics of value investing:
• Buying high-quality stocks that have been discounted relative to the intrinsic value;
• Investigating the price of a stock in relation to the annual dividend that the stock is likely to pay;
• Buying stocks from a variety of sectors; and
• Doing the opposite of what everyone else may be doing.
Value investing may or may not be right for every investor. By examining your personal tolerance for risk and determining a time horizon for your investment strategies, you can determine which style best suits your needs. Regardless of which style you choose, it is important to keep diversification a top priority in portfolio allocation.
Article provided by Frank J. “Buddy” Brand II, a Senior Vice President/Investments with Stifel, Nicolaus & Company, Incorporated, member SIPC and New York Stock Exchange, who can be contacted in the Florence office at (843) 665-7599.