Do you want to grow wealth over the next decade? If you’re reading Money Vikings then the answer is probably yes. One area to consider is adding exposure to value stocks to an overall well balanced portfolio appropriately structured for your temperament and goals.
I am adding larger and larger positions to value investing to reap higher returns over the next decade and here are some of the reasons why.
S&P 500 to lag?
A value stock is a stock that is trading below its intrinsic value, or the value that the company is actually worth. Value investors believe that these stocks are undervalued by the market and that they will eventually rise in price to reflect their true value.
Some of the most famous value investors include:
Benjamin Graham: Graham is considered the father of value investing. He developed the concept of intrinsic value and taught many of the value investing principles that are still used today.
Warren Buffett: Buffett is one of the most successful investors of all time. He has a long track record of finding undervalued stocks and generating significant returns for his investors.
5 Advantages of Value Stocks:
- Lower risk. Value stocks are typically less risky than growth stocks because they are more established companies with a track record of profitability. They are also less volatile, meaning their prices do not fluctuate as much as growth stocks. This makes them a good choice for investors who are looking to reduce their risk.
- Higher potential for capital appreciation. Although value stocks may not offer the same potential for capital appreciation as growth stocks, they have the potential to generate significant returns over the long term. This is because value stocks are often trading below their intrinsic value, meaning that they are undervalued by the market. As the market realizes their true value, the price of the stock can rise significantly.
- Reliable income. Many value stocks pay dividends, which can provide investors with a steady stream of income. This can be especially important for retirees or other investors who need a regular source of income.
- Less competition. Value stocks are often in mature industries where there is less competition than in growth industries. This can make it easier for these companies to maintain their profits and grow their earnings over time.
- Less susceptible to market fluctuations. Value stocks are less susceptible to market fluctuations than growth stocks. This is because they are not as dependent on future growth expectations. As a result, value stocks can provide a more stable investment during periods of market volatility.
Higher Potential Returns: Value stocks have the potential to deliver higher returns over the long term as they are purchased at a discount to their intrinsic value, allowing investors to benefit from future price appreciation.
Lower Downside Risk: Investing in value stocks can provide a certain level of protection against market downturns. Since these stocks are already trading below their intrinsic value, there is less room for significant downside risk.
Dividend Income: Many value stocks are known for their stable dividend payments. By investing in value stocks, investors can potentially earn regular income through dividends while waiting for the stock price to increase.
Contrarian Investing Opportunities: Value investing often involves going against the market sentiment. This strategy allows investors to identify opportunities where the market has overlooked or undervalued certain stocks, providing potential for higher returns.
Margin of Safety: Value investing emphasizes the importance of a margin of safety. By buying stocks below their intrinsic value, investors create a cushion that protects them from unforeseen events or potential market fluctuations.
Remember, investing in value stocks requires thorough analysis and due diligence to identify quality companies with solid fundamentals.