Value Investing Explained
What is value investing?
Value investing is simply buying stocks when they are undervalued. Despite how simple this may sound, the investment industry has been incorrectly classifying value and growth stocks based on a set of rigid criteria.
At WealthArch Investment Services, we take the time to get to know each investment like the back of our hand. Our expert advisors thoroughly research each stock by combing through financial statements, market analysis, and completing a rigid financial valuation of each company. We only invest in 5-25 stocks most of the time and maintain a cash reserve for great risk/reward opportunities. Value investing is what gives us the confidence that we will survive large corrections and be aggressive when prices are cheap, so you can have the upper hand when it comes to growing your portfolio.
How it Works
Value investing is what has been made popular by Warren Buffett, and it isn’t as simple as buying stocks that have low price-to-earnings ratios, low price-to-book ratios, or high dividend yields. A stock can appear to be undervalued, but there could be a variety of hidden reasons that can explain its low investment value. In other words, a stock that appears to be undervalued could actually be overvalued based on its potential prospects.
Conversely, high-priced stocks could potentially be undervalued as traditional accounting principles may not capture the true intrinsic value of the business. For example, some companies reinvest large amounts of capital for the long term, and these investments are treated as expenses under accounting principles. This clouds the true profitability of the company’s current core businesses. At WealthArch, our advisors are equipped with more than 20 years of value investing experience, combined with diligent research, it is what enables our team to identify promising opportunities with a lower probability of permanent loss.
Proactive Investing
Rating companies, such as Morningstar, are sluggish in updating the classifications of value and growth stocks. Stock prices often move significantly over 1-2 years and should be classified as value at a certain price, and growth at another price. Over many years, we’ve also seen other companies explain value investing very rigidly.
For example, the price of Netflix stock was as high as $700 per share in 2021. When it fell close to $200 in 2022, we had a framework in place to act quickly and capitalize on this significant drop in value. In 2021, Netflix stock was correctly classified as a growth stock. Later, at our purchase prices, Morningstar had not yet updated their platform to reflect Netflix’s new classification as a value stock. By keeping a careful eye on mispriced opportunities, our nimble and strategic team was able to leverage the power of value investing, which is what helps us invest in great risk-adjusted reward propositions.
The Bottom Line
When understanding what value investing is, the formula seems simple, but the amount of dedication needed to implement it to its full potential in the market can be time-consuming. In a nutshell, if the stock price is lower than the intrinsic value of the company, then it is undervalued.
These undervalued stocks are what value investors look for, and that’s where WealthArch Investment Services thrives. Contact us today for a free consultation with our fiduciary advisors!
Warren Buffett
To better explain value investing, it pays to learn from Warren Buffett, one of the most successful investors in history. He patterned his strategy after value investing pioneer Benjamin Graham.
He became Chairman and CEO of Berkshire Hathaway in 1970. In May 2024, Berkshire Hathaway was a $871 billion-dollar company.
OUR INVESTMENT APPROACH
WealthArch is committed to completing an in-depth analysis of each investment to maximize your returns while mitigating risk. We don’t take a cookie-cutter approach to helping you create the roadmap to financial independence.
