Not very long back, sales used to be seasonal events. A year would have two-three, or at the most four, sales. Monsoon sale and Diwali sale were the most popular ones, and there would be a summer sale or winter sale as well. But that was about it.
These days, there is a sale almost every month. Discount signs on shop windows have become as apparent as the goods they sell. I don’t know about you, but I don’t remember the last time I went to a shopping mall and didn’t come across a sale of some sort. On shopping websites, sales are almost eternal.
And do you know why? Because people like to buy stuff cheap. In fact, the cheaper the products and services are, the more of them we end up buying. But this is not because we are cheap. We spend a lot on sales to be called cheap. The simple reason why we get induced by sales is because we see value in buying something for a lesser price.
This is just the way we are. We are not always cheap, but we like to buy things for cheap. Why pay more for something similar that costs less? If this makes sense to you, you are cut out to be a value investor.
Benefits of Value investing
Value investing means investing in stocks that are available at sort of a discount. A value investor buys stocks that are trading at lesser than their intrinsic value. The intrinsic value of a company is its actual value, one that is not affected by external factors. In value investing, we look for stocks where the market has not recognised the intrinsic value of the company.
These are companies that are fundamentally strong, have shown good financial performance and have valuable assets, but all of this is not reflected in its stock price. Which is why the stock is trading at a lower price than it should. And which is why it makes a good investment.
Value investing might be new to you, but it is not a new concept. It has been practised by investment stalwarts like Benjamin Graham and Warren Buffett. There have been numerous studies on the value investment strategy that have concluded that this approach enables investors to beat the market over time.
As a long-term investment strategy, value investing also negates the hype and drama around daily stock movements. It limits the company’s downside as well during market volatility.
How to invest in a portfolio of value stocks
Now, if you are sold on the value investing strategy, and there is no reason why you shouldn’t be, the question that obviously comes to mind is how can you narrow down on undervalued stocks. The process requires you to look at certain parameters of the stock as well as the company. There are things like PB ratio and PE ratio that can help you determine if a stock is undervalued or not. You can also look at the dividend yield of the company to figure out how stable and mature it is.
If this sounds like too much for you to do, you can just opt to invest in smallcase Select – Value Investing.
This smallcase comprises stocks that are present in the most number of smallcases from the Value Investing collection. smallcases in this collection has generated average returns of more than 89% in the past one year.
|smallcase||1-year returns (%)||2-year returns (%)|
|Cash Cows at Bargain||65.52||92.25|
Returns as on 8 December 2017
The best of these four smallcases have been put together in smallcase Select – Value Investing. The stocks that are present in more number of these four smallcases have been preferred for the new smallcase.
And how has this smallcase performed? Check out the chart below.
As you can see, our value investing smallcase has greatly outperformed Nifty over the past two years. If you had invested Rs 10,000 in Nifty on 31 August 2015, your money would be worth Rs 12,600 today. On the other hand, the same Rs 10,000 invested in smallcase Select – Value Investing would have grown to Rs 22,500. That’s 78.57% higher returns for you! And an overall return of 125%.
Buying something undervalued from a mall will never be as rewarding as putting your money in the value investing smallcase. Happy investing!