Do You Have The Patience To Engage In Value Investing?

canstockphoto19589320One of the terms that buyers and sellers tend to bandy about on the market is “Value Investing.” If you’ve never heard of this term, you are likely very new to the scene. However, it may be that you are quite familiar with the basic principles of value investing, but are simply torn over whether you truly possess the patience and doggedness that it can sometimes require to realize long term profits from this particular strategy.

If so, you are hardly alone, as there plenty of other potential buyers also wrestling with this age old question. Many companies, such as Fisher Investments, publish information on their websites that can help you quickly learn the difference between the two styles. It’s an excellent idea to check the websites of Fisher and others in order to make sure you’re completely comfortable with investing in either of these two styles.

What Exactly Is Value Investing?

If you aren’t exactly sure what exactly is meant by the term “Value Investing”, here is a handy definition: Value investing is the art of finding companies that have lower than average rates in both growth and earnings. While this may seem disingenuous at first blush, there is a method to the madness.

The holdings of a company offering value funds will generally be stocks that feature much lower price to earnings ratios, as well as lower price to book ratios. Meanwhile, these stocks will also feature higher dividend yields. And here is where the potential for profit comes in: The possibility of capitalizing in a huge way on a turnaround scenario. In other words, if the stock has generally been priced either slightly, or sometimes significantly, lower than its actual value, the sudden rebound up to its true potential can result in a very attractive windfall for the savvy investor.

However, in fairness, it’s also important to point out that the potential for the opposite outcome is also present in every value fund. The market may actually have been valuing this fund at its correct price all along, in which case you may never realize your expected profit.

Investing In Value Funds Takes A Great Deal Of Patience

Investing in value funds requires a great deal of patience in an investor. Perhaps the main appeal of a value fund is its relative safety, reliability, and non-volatility. In contrast, growth funds can shoot up like a rocket, then fizzle out in mid air, never to be seen or heard from again.

People who often invest in value funds tend to prize the slow, steady development of a company stock, often waiting months or years for it to realize its true potential. It can be a gamble to pick a winner, but the eventual payoff is an excellent reward for your patience, while a dud stock doesn’t raise the possibility of a massive financial loss in quite the same way as the failure of a growth stock.

In the end, the choice of whether to invest in growth funds or value funds may well come down to your intrinsic personality. If you like the thrill of a quick payoff from a fast developing fund, growth funds may best suit your character. Value funds are the province of a more cautious and patient investor.