Value investing is not meant to be comfortable

Investors should not be afraid of taking risks

clock • 4 min read

Successful value investing requires that you both identify undervalued companies that the market has chosen to dismiss, and then continue to hold them until the market adjusts its thinking.

By definition, this can mean extended periods where you have to wait for an investment to perform. However, if you are correct, the long-term rewards can be significant. The critical question to ask is not, 'is this a great company?', but rather, 'is this a great price?' Graph one (below) plots the ten-year compound real return against the starting price-to-earnings ratio (P/E) of the FTSE All-Share index for every year since 1974. The trend line is clear. If you 'buy low' you stand a much better chance of 'selling high'.  We are at the end of a 'value-down' cycle However, this ...

To continue reading this article...

Join Investment Week for free

  • Unlimited access to real-time news, analysis and opinion from the investment industry, including the Sustainable Hub covering fund news from the ESG space
  • Get ahead of regulatory and technological changes affecting fund management
  • Important and breaking news stories selected by the editors delivered straight to your inbox each day
  • Weekly members-only newsletter with exclusive opinion pieces from leading industry experts
  • Be the first to hear about our extensive events schedule and awards programmes

Join now

 

Already an Investment Week
member?

Login

More on Markets

How big an impact could global elections have on portfolio allocation in 2024?

How big an impact could global elections have on portfolio allocation in 2024?

US, UK and India main focuses

Investment Week
clock 19 February 2024 • 8 min read
Hotter than expected US inflation tempers Fed rate cut expectations

Hotter than expected US inflation tempers Fed rate cut expectations

Annual price growth falls to 3.1%

clock 13 February 2024 • 1 min read
Investors turn defensive in January as rate cut expectations change

Investors turn defensive in January as rate cut expectations change

State Street Risk Appetite index

clock 08 February 2024 • 1 min read
Trustpilot