Value Investing

Value investing is something of a misnomer in many ways as investors would not knowingly buy shares in a company unless they thought that the shares were good value. However, value investing has come to mean the purchase of shares that look cheap according to particular criteria. Historically, this has meant the purchase of shares in companies that have low price earnings ratios (P/Es), a high level of asset backing, or high dividend yields, or a mixture of all three. This is in contrast to growth investing, where the investor focuses on the potential for future earnings growth and is prepared to pay a much higher P/E multiple.