"The secret to investing is to figure out the value of something - and then pay a lot less."
- Joel Greenblatt
"I make no attempt to forecast the market-my efforts are devoted to finding undervalued securities."
- Warren Buffett
Paying too much for your stocks? Consider the Value Factor.
The name Benjamin Graham is synonymous with value investing. Mr. Graham and co-author David Dodd released the influential book “Security Analysis” in 1934. (Graham & Dodd, 2008). This book provided a formula to calculate a company's intrinsic value based on its long-term growth potential and Earnings Per Share (EPS). And while this formula was improved upon in his follow-up book, "The Intelligent Investor" (Graham, 2013), which was published in 1974, its fundamental principles have remained the same for almost a century.
Value Investing
Value investing's fundamental tenet still revolves around buying stocks whose intrinsic value is higher than their current market price. However, its effective application depends on also being able to predict a company’s growth rate accurately and as a result, the exact formula isn’t commonly used in factor investing. Instead, factor investing focuses on Price to Book Value (P/B), Price to Sales (P/S), Price to Earnings (P/E), and Dividend Yield to measure value.
