Value investing

Value investing is buying a stock for less than what the underlying business is actually worth, on the belief that the market has mispriced it and the price will eventually catch up to reality. A "value play" is shorthand for a specific stock someone believes fits that description right now.

The gap between a stock's price and its estimated real worth is what Benjamin Graham, the investor who popularized the strategy, called the margin of safety. Investors look for that gap by comparing a company's earnings, assets, and cash flow to its current price, using tools like the price to earnings ratio or a discounted cash flow model, rather than by guessing at a price target.

Cheap is not the same as underpriced. A stock can trade at a low multiple because the market has correctly priced in a real, structural problem, a shrinking business, a broken moat, mounting debt. Value investing only works when the discount reflects fear or inattention rather than a fair read of a genuinely weaker business, which is why the analysis, not just the low price, is the actual work.