VALUE investing is based on buying securities that appear under-priced or cheap using some form of fundamental analysis. According to Benjamin Graham value investing is knowing the intrinsic value of a common stock and comparing it with the market price. Buying it when the value is higher than the price and selling it when price is more than its value. It was first taught by Graham at the Columbia Business School in 1928 and developed in the 1934 text Security Analysis. The more known book, The Intelligent Investor, first published in 1949, talks about the strategies on how to successfully use value investing in the stock market. A value stock usually has a low P/E ratio, a high dividend yield and low P/BV ratio.

P/E stands for Price Earnings ratio. How much are you paying for a company and how much is it making? How long would it take you to recoup your capital? A P/E of five times means assuming earnings stay the same, it will take you five years to recoup your capital. Reversing it one divided by five means you will make about 20 percent a year.