Valuation
Value investing
Buying assets for less than an estimate of their intrinsic worth, with a margin of safety.
How it works
The discipline centres on estimating what a business is worth and only buying at a meaningful discount, so that being somewhat wrong still leaves an acceptable outcome.
The classical form focused on statistical cheapness — low P/B, low P/E. Modern practice usually weighs business quality alongside price, because a cheap business that erodes is not a bargain.
Where it misleads people
Cheapness alone is not a thesis. Many statistically cheap companies are cheap because their economics are deteriorating, which is the value trap.
Related terms
- Margin of safetyThe gap between what you pay and what you think something is worth, sized to absorb being wrong.
- Intrinsic valueWhat an asset is actually worth based on the cash it will produce, regardless of its market price.
- Value trapA share that looks cheap on the numbers and stays cheap because the business is deteriorating.
- Price-to-bookMarket value divided by the accounting value of the company’s net assets.
- Economic moatA durable structural advantage that lets a company keep earning high returns without being competed away.
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Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.