{"id":111722,"date":"2023-08-30T09:39:00","date_gmt":"2023-08-30T13:39:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=111722"},"modified":"2025-09-15T10:15:34","modified_gmt":"2025-09-15T14:15:34","slug":"value-investing-strategy","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/value-investing-strategy\/","title":{"rendered":"What Is a Value Investing Strategy? Learn the Basics"},"content":{"rendered":"\n

What’s a value investing strategy<\/a>? How do you find underpriced securities?<\/p>\n\n\n\n

According to The Most Important Thing<\/em> by Howard Marks, value investing is the cornerstone of successful investing. This involves the practice of purchasing securities below their intrinsic value.<\/p>\n\n\n\n

Here’s why you should choose value investing over growth investing, and how to look for underpriced securities.<\/p>\n\n\n\n\n\n\n\n

Editor\u2019s note: This article is part of\u00a0Shortform\u2019s guide to saving money<\/a>. If you like what you read here, there\u2019s plenty more to check out in the guide!<\/em><\/p>\n\n\n\n

Value Investing vs. Growth Investing<\/strong><\/h2>\n\n\n\n

As Marks relates, a value investing strategy and a growth investing strategy represent different investing approaches based on securities\u2019 fundamentals<\/em>\u2014that is, information that reflects the financial health of a security, such as revenue, cash flow, and profit margins. He argues that value investing is superior to growth investing because it yields more consistent and dependable returns. <\/strong><\/p>\n\n\n\n

To understand growth and value investing, however, we first need to understand the notion of intrinsic value<\/em>. At its core, intrinsic value refers to the fair value of a security, assuming all relevant information was factored into its price. For example, if extreme pessimism led investors to excessively sell Amazon stock at the beginning of 2023, then Amazon\u2019s share price of $85.46<\/a> might have been lower than its intrinsic value per share.<\/p>\n\n\n\n

Marks notes that value and growth investors agree that over the long term, securities\u2019 prices roughly match their intrinsic value. However, this agreement yields different conclusions. On one hand, value investors seek out underpriced securities\u2014those whose price is below their intrinsic value\u2014reasoning that, as the market corrects this disparity, these securities will increase in price. On the other hand, growth investors seek securities whose intrinsic value has high growth potential\u2014even if these securities aren\u2019t currently <\/em>underpriced\u2014reasoning that, as their intrinsic value increases over time, so too will their trading price. <\/p>\n\n\n\n

But Marks contends that it\u2019s much more difficult to assess long-term potential than present value. Moreover, he writes that unless you\u2019re superior to the market at identifying potential, it\u2019s likely that this potential is already<\/em> factored into the security\u2019s price. For example, Tesla\u2019s stock price at the beginning of 2020\u2014$28.30 per share<\/a>\u2014likely reflected not only Tesla\u2019s business fundamentals, but also its potential for explosive growth. In turn, he concludes that value investing generates more consistent\u2014and less speculative\u2014returns than growth investing, making it preferable for investors. <\/p>\n\n\n\n

How to Find Underpriced Securities<\/strong><\/h2>\n\n\n\n

Having shown it\u2019s possible <\/em>for the market to underprice securities, Marks then offers concrete advice for finding underpriced securities. He argues that to find underpriced securities, look for those that investors have significantly misjudged<\/strong>. Marks reasons that if investors have accurately assessed a security, then it\u2019s likely trading around its intrinsic value. But, if investors have inaccurately <\/em>assessed a security (in this case, by underestimating it), the security\u2019s market price will be lower than its intrinsic value.<\/p>\n\n\n\n

(Shortform note: Some may say that Marks\u2019s advice in this case borders on tautological: By definition, investors\u2019 assessments of securities determine their market price<\/a>, so it logically follows that securities are mispriced whenever investors misjudge them.)<\/p>\n\n\n\n

To put this argument into practice, Marks offers several signs to look for that might indicate an underpriced security: <\/p>\n\n\n\n