Importance of Value Investing In Stock Market

There is a common misconception that investing in equity is risky. But the fact is with the right strategies, proper planning, and the ability to hold your investments for a minimum of 3-4 years, equity investing can be highly rewarding. One such strategy is Value Investing, which allows investors to maximize returns while minimizing risk by identifying undervalued stocks. By identifying undervalued stocks and investing in them, value investors protect their capital during market downturns and capitalize on opportunities when stock prices eventually reflect their intrinsic value.

Why Value Investing Matters Today

In today’s world of Stock Market where prices fluctuate within seconds it’s important to know the importance of value investing. Whether you are a beginner or an investor or someone looking for steady growth, understanding why value investing matters can make a significant difference in managing your financials or in decision making.

As per May 2024 bi-monthly household inflation expectations survey, released by the RBI on June 07, 2024, shows that inflation is expected to rise by 20 basis points over the next three months and by 10 basis points within the next year (Source: Economic Times). This underscores the significance of value investing because of many reasons such as:-

Margin of Safety:

Value investing provides room for a margin of safety by investing in shares when prices are below intrinsic value. By doing this, investors increase the chances of making a profit when they sell the stocks at a later date. In the case of stocks failing to perform according to expectation, the margin of safety will protect one against possible losses.

For example, if you believe a stock’s true worth is Rs.100 and you purchase it for Rs.75, if the stock increases in price to its intrinsic value, you have just made Rs 25. If the company grows in value, you would profit even more. For instance, if the stock price rises to Rs. 110, this would result in a profit of Rs. 35 as against just Rs.10 when you buy it at the full price of Rs. 100.

Risk Management:

Value investing involves exhaustive research and focuses on financially stable companies. This disciplined approach helps to reduce the risk and protects investments when market goes down.

Long term wealth Creation:

Value investing is an investment strategy that reduces potential risks and maximizes the opportunity for profit by purchasing undervalued assets while their stock value increases. It searches for solid investments that others often miss out on, thereby reaping steady gains over time. Here the actual magic of compounding works for you.

Conclusion:

It is one of the safest strategies in the volatile market today. Inflation protection, minimization of the impact of market volatility, and growth are some of the unique features that value investing gives. Value investing enhances the probability of profitable outcomes and brings stability to wealth creation, a ‘must’ for financial security to investors through informed decision making in the stock market.