When it comes to investing, there are various styles of investing. The ones most commonly followed globally and India are value, growth and momentum style of investing. Each has its own unique style, advantage and disadvantages. But if you are an investor who is looking at these styles, to deploy your long term capital then there is only one clear winner and that is the value style of investing. This is because of the fundamental attributes attached to the investing style.
Some of the best known gurus of investing like Benjamin Graham, Warren Buffet, Peter Lynch, Joel Greenblatt, amongst others, have all been proponents of value investing as a means to build wealth. At its core value investing is all about buying robust companies which are trading at attractive valuations but is quoting at a price discount to their intrinsic value. The aspect which is most challenging in this journey, is the ability to find the true intrinsic value of a stock at any given point in time.
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Aspects a Value Investor should be Mindful About
The most important attribute of a value investor is being patient with one’s investment. It is a known fact that globally as well as in India, value investing does not work at all points in a market cycle. For example: In the US, value as a style had failed to deliver any returns. But since the onset of the pandemic, value has regained most of its lost ground as the companies which were trading at astronomical valuations have all corrected.
Closer home, till September 2020 was down and out. Investors who would have invested in value over the past few years would have had a challenging time as there was barely as returns made. But as markets became expensive and valuation started looking untenable, value made a strong comeback delivering over 13% return while the benchmark indices delivered single digit return. So, the lesson from both the markets are the same. What investors need to remember is that value investing will deliver over the long term for a patient investor.
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Another advantage of value investing is the irrespective of the market phase- bull, bear or sideways – there are always pockets of value available in the market. So, it is never too difficult for a value fund manager to find attractive investment opportunities. Another aspect investor should be mindful about is value investing at a time when market is elevated tends to do well. This is because value focuses on investing in sectors which are out of favour but offer good long term potential in terms of generating returns.
What is Not Value Investing
Many investors tend to believe that buying something cheap is value investing. But that is an erroneous approach. There is always being something which is cheaply valued in the market. Buying such names could be value traps and over long term the money invested can head towards zero. What is necessary for investor to be mindful of is to invest in companies which are fundamentally strong i.e. have a strong business with robust balance sheet but is facing a short term issue due to which prices have corrected. Then it is only a matter of time before markets realise its true value and the stock price rises in accordance to its fundamental strength.
Ways to Invest
One of the easiest ways of value investing is to invest in a mutual fund offering which is based on the value style. In India, there are several offerings by various fund houses which offer value fund. However, there are some true blue value funds which have a history of nearly two decades and have delivered sizeable returns to an investor who is investing for the long term.
One of the popular names in this category is the Value Discovery Fund which recently completed 18 years in existence. A monthly investment of Rs 10,000 through SIP since inception i.e. August 2002 in this fund would have resulted in an investment of Rs 21.7 lakh. As of August 2022, the value of investment would have been 1.3 cr i.e. a CAGR of 17.5%.
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To conclude, value investing is a rewarding experience over long term but be sure that one’s patience will be tested along this journey.
