Value Investing

 By Arun Dahal Khatri

Core Understanding About Value Investing:

Value investing is a well-known investment strategy that successful investors like Warren Buffett, Charlie Munger, and Benjamin Graham have followed. At the heart of value investing lies the principle of buying securities at a discounted price relative to their intrinsic value and holding onto them for the long term. This approach is often connected to planting a coconut tree with the expectation of reaping the coconuts. The value investing philosophy is simple; it involves evaluating assets or companies to determine their actual value and acquiring them when they are undervalued. This requires a strategic and disciplined mindset and adherence to investment principles. Value investors seek out opportunities to purchase high-quality securities at a reasonable price to profit from their growth potential in the long run.

A key aspect of value investing is the emphasis on the intrinsic value of an asset, which represents its true worth based on underlying fundamentals rather than its market price. Successful value investors like Warren Buffett and Benjamin Graham have demonstrated an unwavering focus on their companies' long-term prospects and financial health rather than being swayed by short-term market fluctuations. To embrace the role of a value investor, individuals must adopt a particular mindset and abide by specific investment rules. One of the essential reads for value investors is the book "The Intelligent Investor," which offers valuable insights into the qualities of successful investors and the importance of sticking to investment fundamentals. Value investors are distinguished by their approach to the market. Rather than being preoccupied with daily stock prices, they prioritize understanding a company's fundamentals and capacity for long-term growth and profitability. It requires a commitment to hold onto their investments for extended periods, even if short-term gains might be tempting.

Value investors differ significantly from those who engage in short-term trading, seeking to identify value in assets and patiently waiting for the market to recognize and reflect that value. Their objective is not to engage in quick transactions to make short-term profits but to build wealth over time through the growth of their chosen investments. The process of value investing may appear straightforward, but it requires a combination of financial analysis, industry knowledge, and insight into a company's management and prospects. By focusing on these factors, value investors can better assess the actual value of an asset and make informed decisions about when to buy, hold, and sell.
While value investing is known for its potential to earn significant returns with relatively low risk, it has challenges. Identifying undervalued assets can be difficult, as emotions and speculation often influence the market. Moreover, patience and discipline are essential traits for value investors, as it may take time to recognize the actual value of their investments.

Furthermore, value investing is a proven and successful investment strategy followed by some of the most renowned investors in history. It involves buying assets or stocks at a discount to their intrinsic value and holding the stocks for the long term. This approach requires a disciplined and patient mindset, with a focus on the underlying fundamentals of the investments rather than short-term market fluctuations. By adhering to these principles, value investors can position themselves for long-term success and potentially achieve significant returns on their investments.

Table 1: Price Table of NABIL 

Table 2: Dividend Capacity Table of NABIL

A value investor always wants to see Table 2 rather than Table 1.

For value investors, Table 2 holds more significance than Table 1. Unlike other market participants, value investors do not react impulsively to daily market fluctuations or news. Instead, they follow a disciplined approach and prioritize their emotions and behavior in their investment decisions. According to value investors, emotion is a crucial asset that needs careful management. A value investor remains patient, awaiting opportunities to arise amidst market greed and fear. As Warren Buffett, the iconic value investor, famously said, "Be fearful when people are greedy and be greedy when people are fearful." This quote encapsulates the essence of value investing, which involves capitalizing on undervalued assets during periods of market fear and being cautious during periods of irrational exuberance.

Furthermore, value investors are introspective and continuously learn from past mistakes. They actively seek to understand the reasons behind the missteps made by other investors and are eager to correct their historical errors. The process of selecting stocks for value investors revolves around finding the actual value of an asset and ensuring that it is acquired at a fair price. This strategy enables value investors to secure their investments and potentially yield higher profits. When investing in a particular stock, a value investor exercises extreme caution, meticulously analyzing the potential risks and rewards associated with the decision. They stand by it firmly once they conclude, avoiding knee-jerk reactions to market fluctuations.

If a value investor has decided to purchase a specific stock that is not readily available for sale, they will patiently wait for the opportunity. They refrain from diverting their attention to other stocks simply because their initial decision took time to be actionable. This commitment to their chosen investment approach is a key characteristic that sets value investors apart. Value investors employ various financial tools and analysis methods to identify the best securities. They scrutinize financial statements, profit and loss statements, and ratios to gain insights into a company's financial health and performance. This in-depth research enables them to make well-informed decisions based on objective data and analysis.
Value investing is a time-tested strategy and an approach that has proven its worth through successful investors like Warren Buffett and Benjamin Graham. While it offers the potential for lucrative returns and a reduced risk of loss, it is not without its challenges. Identifying undervalued assets in a market influenced by emotions and speculation can be daunting. Value investors must remain disciplined and patient, as the realization of value may take time to manifest in the market.

In conclusion, Table 2 holds greater significance for value investors than Table 1. The value investing approach is grounded in a disciplined mindset, where emotions are carefully managed, and decisions are made based on conceptual research and analysis. Value investors seek opportunities to purchase undervalued assets and patiently hold onto them long-term, capitalizing on market fluctuations and learning from past mistakes. While value investing requires patience and commitment, it has proven to be a successful strategy for generating sustainable returns and safeguarding investments in the long run.