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An investment strategy that involves selecting stocks that appear to trade for less than their intrinsic value, based on fundamental analysis.
Value investing was formalized by Benjamin Graham and David Dodd at Columbia Business School in the 1930s and later championed by Warren Buffett, who became one of the wealthiest people in the world using this approach. Value investors look for stocks with low P/E ratios, low price-to-book ratios, high dividend yields, and strong free cash flow relative to their market price. The strategy requires patience and conviction because undervalued stocks can remain undervalued for extended periods. Historical research by Fama and French has shown that value stocks have outperformed growth stocks over long periods, though the premium has been smaller in recent decades.