You’re probably familiar with “buy low, sell high” as the way to earn a profit from the stock market. In practice, this is notoriously difficult to do. You have to be able to identify the right entry and exit points in order to reliably pull this strategy off.
Instead of trying to time the market (which is not advisable), a more successful strategy would be to buy a stock when it is underpriced – provided that the underlying company maintains strong long-term growth prospects.
This is known as value investing, and is a popular technique that has helped many investors succeed, including Warren Buffett, Charlie Munger and Peter Lynch.
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How Value Investing Works
Founded by Benjamin Graham in the 1930s, the core principle behind value investing is to buy a company for less than its intrinsic value, which increases the chance of making a return while reducing risk to capital.
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