Understanding Value Investing

By using a practical example, investment expert Simon Brown explains how to utilise a value investing strategy – and when to exit a stock you have bought based on this approach.

- Simon Brown

In the 30 August edition of finweek, I wrote about utilising a momentum strategy and how to maximise the exit price. Typically, momentum is more a trading strategy, but it can sit well within a portfolio as a different style.

In this edition, I want to look at profiting from a value investment strategy.

Value is what most investors want when buying (with the exception of momentum traders), but what differs is how we define value. Different investors will define it differently. Investor and economist Benjamin Graham’s approach to value investing is seen as classic value investing – and he was considered the father of value investing.

What I will be focusing on here, is how value investing works in terms of generating profit, and when to exit.

The first trick is to find a stock that meets the criteria of value. I could also add quality, and here I focus on my second-tier portfolio, consisting of quality small and mid-cap stocks that I hold for as long as value exists. This can often be for years, and sometimes a decade or more.