What is value investing and how could it help you navigate market volatility.

The story

With recent market swings creating uncertainty for many investors, the question arises: how can we build a resilient portfolio in times like these with the help of value investing? So let’s explore why this approach could be a stabilizing force during turbulent times.

Following a style of value investing, value mutual funds have attracted investments of more than ₹11000 crores in the first six months of the current financial year.

It is often considered a must-have in an investment portfolio. Why, you ask? For that, we need to understand what is value investing.

What is value investing?

Value investing is a style of investing where the investor seeks to identify companies that are selling for less than their intrinsic value. The process involves estimating what a company is truly worth, and then buying it if the market price is lower than this estimated value.

Now, there’s no fixed formula for finding a real or intrinsic value of a company. It is a highly subjective thing, depending on qualitative and quantitative factors.

Imagine it like this: you look at both positive and negative sides and you believe more on the positive side than most of the people in the market. This also explains why such companies often trade lower than their intrinsic price.

The goal is to find opportunities where a company’s current stock price is below its perceived real value, expecting that the price will eventually rise as the market recognizes its real value.

And how can you invest in value stocks? The answer is Value Mutual Funds. When you invest in value funds, fund managers do the job of finding value stocks to invest in them on your behalf.

Three major advantages of value funds

1. Value Over Hype:
Unlike growth investing, where you bank on a company’s future potential, value investing focuses on buying stable companies at a discount. This means less exposure to over-hyped stocks.

2. Protection Against Drawdowns:
When the market falls, growth stocks often tumble the hardest because of their overvaluation, while value stocks tend to decline less because of strong fundamentals.

3. Balanced Portfolio:
Value investing can act as a stabilizer in your portfolio, complementing growth investments. This diversification can reduce overall risk, allowing you to weather market cycles with more resilience.

To conclude

While growth stocks often perform well during the uptrends, combining them with value stocks could make your portfolio all-rounder and prepared for all kinds of market swings.