Vying for Value

Whilst the stock market offers open ended opportunity for wealth creation, possibly the most tried and tested technique is that of 'value' investing. Crafted by Benjamin Graham in the 1930's, this approach has been practised and refined by numerous distinguished investors including Warren Buffett.

Generally considered more conservative than growth investing, value strategies usually enjoy greater popularity among the private client investor base. This may be attributable to the fact that they typically identify stocks which operate in relatively mature industries and therefore have a lower risk profile.

The value philosophy centres upon the premise that while the market should generally price stock to equal its intrinsic worth, at certain times a share may become either over or under valued, and thus afford the potential for opportunistic plays.

In their search for such bargains, value practitioners adhere to a set of stringent financial criteria, including a low P/E ratio, a high dividend yield, a low debt position and stability in earnings. A stock which fails to clear a combination of these hurdle rates will not be purchased, irrespective of how promising the company's outlook may be.

However, the risk is that even if you are successful in sourcing stocks at variance with their value equilibrium, the market may not follow your conviction within a short time frame. Value investing is a long-term strategy.