What is value investing?
Samir wants to know what value investing is. His friend Ashish, an avid trader with Angel Broking, explains:
Let’s compare two similar manufacturing companies: ABC filters and Pro-filt Enterprises, whose current net worth is 500 crore rupees each. However, ABC filters’ market capitalization or market value is 250 crore rupees. This means that the market has given ABC filters a lower valuation that is only half its net worth. Pro-filt Enterprises market capitalization is 500 crore rupees. This means the market has given Pro-filt Enterprises evaluation at par with its current net worth. So, ABC filters is trading at half the valuation of pro Pro-filt Enterprises and at a discount to its actual value. Assuming that the prospects of both the companies are the same, investing in ABC filters will give a better return on investments a few years down the line. This would be a case of value investing.
Warren Buffett used this concept to generate enormous wealth. Samir now understands the benefits of value investing and is now ready to trade with Angel Broking