Value investing looks for stocks whose prices are low for their companies' supposed intrinsic worth, which is determined by an analysis of certain characteristics and fundamentals of companies. Mirroring the mentality and shopping style of a bargain hunter, value investors looks for products that are beneficial and high quality but cheap in price. In other words, the value investor searches for stocks that he or she believes are undervalued by the market. Like the bargain hunter, the value investor tries to find those items that are valuable but not quite recognized as such by the majority of other buyers.
Warren Buffett takes this value investing approach to another level. Many value investors aren't supporters of the Efficient Market Hypothesis but trust that the market will eventually properly start to favor those quality stocks that were, for a time, undervalued. Buffett, however, doesn't think in these terms. He isn't concerned with the supply and demand intricacies of the stock market. In fact, he is not really concerned with the activities of the stock market at all. He chooses stocks solely on the basis of their overall potential as companies--he looks at each company as a whole. Holding these stocks for the extended long term, Warren Buffett seeks not capital gain but ownership in quality companies that are highly capable of generating earnings. When Warren Buffett invests in a company, he is not concerned whether the market will eventually recognize the company's worth; he is concerned with how well that company can make money as a business.
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