As a matter of fact, value investing may seem to go against conventional investment wisdom in many cases because value investors tend to seek out stocks that they believe the market has undervalued. This can also include the so called penny stocks at times, but is more often associated with undervalued stocks on a major exchange such as NASDAQ or the NYSE.

The best part about all this is that value investors strategically and actively seek stocks that trade at low values with the intention of getting out of the investment when the market has corrected what the value investor sees as an error in valuation of the stock.

Value investment needs above average insight and savvy concerning the potential value of a particular companys stock, but it requires a keen sense of perception and skill of research as well.

It is not necessarily riskier as compared to traditional market investing, but does require that the investor be correct about the markets underestimation of a particular company. When the value investor is up to the mark, he stands to make a lot of money. On the other hand when hes wrong she can be sitting on a worthless or low value stock for a long time.

Value investment is based on the simple concept that the stock market overreacts to both good and bad news regarding companies and the effects of those pieces of information on the potential for a stocks performance.

This statement on the part of value investors is usually correct as the stock market is often full of nervous investors who will pull their investments at a moments notice or the first, smallest signs of trouble.

Taking into account that Microsoft was once a value investors dream, one can see how value investing can often lead to a generous payday for those investors wise enough to see whats coming down the road.

By definition, Value investment can be defined as the routine of selecting stocks that trade for less than their intrinsic value. A value investor normally selects stocks with lower than average price-to-book or price-to-earning ratios. Of course, it is not nearly this easy. Value investing is more or less the corner stone of long-term growth. Those who practice it with utmost ease survive the ups and downs of the market and are more likely to emerge wealthy than those who ride the market, in principle, due to the higher quality of the companies falling under the prerequisites of the value investor. Value investing is generally concerned with getting the most profit at the lowest cost. The basis of value is only profit. Value investing is an investment style that favors good stocks at great prices over great stocks at good prices. For example value investor extraordinaire Warren Buffett has used this style to become a billionaire.

It's quite crucial to keep in mind that value investing is not concerned with how much the price of a stock has risen or fallen necessarily, but rather what is the "intrinsic" or inherent value of the stock, and is it currently trading below that price, i.e. at a discount to it's intrinsic value. The main point here is that when looking at stocks that are trading at or above their intrinsic value, the only hope for gaining value is based on future events, since the stock price already represents what the company is worth. Though, when dealing with stocks that are undervalued, or available at a discount, unforeseen events are unimportant in that without any new earnings or additional profits, the shares are already "poised" to return to that inherent value which they have.

The question now, of course arises is "why would stock prices not always reflect the true value of the company and the intrinsic value of its shares?" In other word, value investors believe that share prices are frequently wrong as indicators of the underlying value of the company and its shares. The efficient market theory are of the view that share prices always reflect all available information about a company, and value investors refute this with the idea that investment opportunities are created by disagreements between the actual stock prices, and the calculated intrinsic value of those stocks.

Finding Value Stocks

Value investing is solely based on the answers to two simple questions:

1. Firstly what is the actual value of this company

2. And secondly can its shares be purchased for less than the actual (intrinsic) value

Clearly, the pivotal point here is, "how is the intrinsic value accurately determined" An important point is that firms may be undervalued and overvalued regardless of what the overall markets are doing. Each and every investor should be aware of and prepared for the inherent market volatility, and the simple fact that stock prices will fluctuate, sometimes quite significantly. Benjamin Graham has often come up with the idea that if investors cannot be prepared to accept a 50% decline in value without becoming riddled with panic, then investing may not be for them...or rather, successful investing, as it often takes significant losses in a particular security before gains are made, due to the idea that value investors do not try to time the market, and are focused on the underlying fundamentals of the companies. In addition, the quality of the companies targeted by the value investors' screening methods should be, over the long term, less volatile and susceptible to market "panic" than the average stock.

And thats where it can be classified as a two-way road of sorts. On one side of the coin, there is no sense in worrying about depressions, upturns, and recoveries due to the underlying quality of the value investments. On the other side of the coin, investments should only be made in companies that can flourish and do well in any market environment. Thats why doing solid investment research and making equally solid investment decisions will take investors much further than trying to forecast the markets.