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Journal of Commerce & Management Thought
Year : 2010, Volume : 1, Issue : 2
First page : ( 183) Last page : ( 198)
Print ISSN : 0975-623-X.

Value Investing – A Way To Separating Winners From Losers

Tapadia Shrinivas1, Dr. Kaptan Sanjay2Head

1WNS Global Services Pvt. Ltd.

2Department of Commerce, University of Pune.

Abstract

Value Investment represents an investment philosophy which guides an investor in picking high quality stocks for investment from among a number of options available. This philosophy is in divergence with common methods of stock investing which make use of PE multiple as the basic measure of stock selection. The foundation of Value Investing lies in the fact of identifying undervalued stocks based on select criteria of fundamental analysis. The concept of Value Investing was first introduced and publicized by Ben Graham and David Dodd through their celebrated work “Security Analysis”. This paper helps bring out the core of this investment philosophy. The concentration is on understanding the definition of intrinsic value and ways and means of identifying intrinsic value for a stock through some of the established tools of fundamental analysis like dividend discounting model, DCF, Return on Investment (ROI) metric, Earnings per Share (EPS), Price/Earnings Ratio (P/E), etc.

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Key Terms

Price/Earnings Ratio, Security Analysis, Current Market Value, Intrinsic Value, Net Current Assets, Ratio of Market Capitalization to Net Current Assets, Margin of Safety, Dividend Discounting Model, DCF, Return on Investment (ROI), Earnings per Share (EPS), Free Cash Flow (FCF), Price to Sales Ratio.

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