The concept behind value investing is simple: identify stocks whose value isn’t reflected in the current share price and hold on to them until the broader market recognizes what they’re worth.
You see, a stock’s price and its valuation are two different things. Price is determined by what the market is willing to pay, while value is largely driven by what the business behind that stock is worth. If there’s a gap between the two, an investment opportunity may arise.
Valuation-driven investing takes this concept another step further, by taking the future potential of a company into account, in addition to the current business fundamentals. Here, an active approach can shine over the long term.
Keen to learn more? Then explore our educational materials below, which are accredited for structured CPD by CISI.