Value investing is exactly what it sounds like. Investing in assets that offer you value. Basically, value investors look to get the most bang for their buck. They’re often considered the bargain hunters of investors for this reason.

Value investing, explained

Value investors aim for stocks that trade at lower costs than they believe these stocks should be trading. This way, when the market picks up on their value, those stock prices will go up. And value investors will profit on every share that they’d purchased at a discount.

The only real downside to value investing is that it’s pretty subjective. In other words, you decide whether the market is right or wrong about the price of a stock. This means that you need to have an educated opinion. Becoming a good value investor, therefore, requires a lot of research in companies and the larger markets in which they operate.

Warren Buffet, for example, is a world-renowned value investor who was able to sell his stocks for much higher than he’d paid for them. That was all thanks to market-corrected undervaluation. Buffet is known for following the Benjamin Graham school of value investing, but he takes it to another level. While many value investors don’t support the efficient market hypothesis (EMH), which suggests that stocks do indeed trade at fair value, Buffet isn’t concerned with what the stock market does at all. Rather, he focuses on companies’ performances, debt and other factors that indicate how their assets are doing or, rather, will be doing.

Value investors like Buffet focus less on short-term capital gain and more on ownership of quality companies that promise earnings down the line.

What this means for you

Because this investing strategy is rather conservative, you don’t risk as much as you would with a more aggressive investment strategy. While your gains won’t necessarily be as big or as immediate, you have the potential to see growth over time.