If you are not a finance expert, investment terms can seem complex and difficult to understand, thanks to all the jargon. Maybe you tune out your financial advisor at the first mention of “market capitalization” or change the channel when business news comes on. But money and finance concepts are simple—when broken down, most people deal with them every day.
Citi aims to simplify investing so anyone can get started early.
Have you ever walked past an item in a store and stopped because the price seemed too good to be true? Perhaps it was part of a genuine sale, or you simply knew its history and quality well enough to recognize that the listed price was far below its actual worth. After confirming it was authentic, you made the purchase and walked away feeling fortunate to have secured something valuable at a reduced cost. This same principle often guides seasoned investors—particularly those who seek long-term opportunities in quality assets—when they identify companies trading below their true potential.
The scenario above paints a simplified picture of value investing—buying an item on sale because you believe its intrinsic value is higher than the quoted price. In the investment world, the price of an asset is determined by the market. The market, however, is not always efficient at pricing assets, meaning the quoted price may not always reflect an asset’s value. In the stock market, for example, a company’s shares may be underpriced relative to its performance and scope. When an investor buys such stocks believing the market will eventually catch up to their value, this is called value investing. Simply put, value investing is an investment strategy that involves finding assets priced below their intrinsic value and buying them with the expectation that they will eventually increase in price to reflect their true worth.
One of the world’s wealthiest people and most successful investors, Warren Buffett, is a proponent of the value investing strategy. He is famously quoted to have said, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." In other words, he believes that finding great companies that are temporarily undervalued is a key to long-term investment success. Some benefits of investing include:
Buying assets at a price lower than their intrinsic value is a highly effective way to earn significant returns in the long term. Since this approach is based on identifying and selecting solid assets that are temporarily “discounted,” it gives investors the chance to own relatively inexpensive shares of proven businesses. For high-net-worth investors, this can be particularly attractive, as it allows them to strengthen already substantial portfolios with long-term growth opportunities.
Value investors in the stock market can generate even greater profits by reinvesting dividends and returns earned from value companies. This way, your earnings generate earnings, without any additional work on your part.
All investments come with some measure of risk. Nevertheless, value investing is subject to less market volatility than other short-term investment strategies. One major contributor to losses in the stock market is attempting to accurately time the profitable purchase or sale of stocks in the short term. By focusing on companies with strong fundamentals and a long-term competitive advantage, value investors mitigate risk and achieve solid returns over time. For wealthier clients, this balanced approach offers a way to pursue growth while also safeguarding capital—a key consideration in managing significant portfolios.
It is essential to note that value investing requires patience and a long-term perspective. While individuals seeking quick gains may prefer other strategies, many affluent investors value this disciplined approach because it aligns with wealth-building over time and helps preserve capital across market cycles.
Imagine a popular sports shoe company that usually does very well. One year, sales drop for a short time because people are spending less. The market reacts, and the company’s stock price falls. But the company is still strong: it has good products, loyal customers, and healthy profits. A value investor notices this and buys the stock while the price is low. Later, when sales pick up again and the market realizes the company is still solid, the stock price rises. The investor now owns a valuable stock that was bought at a discount.
Now that you know what value investing is and why it is an advantageous investment strategy, you may be wondering how to get started. How do you find these undervalued stocks? A good starting point is to examine a company's financial statements to assess its financial health, as well as its current share price concerning its earnings, cash flow, and other key metrics. You should also consider a company's competitive positioning and any potential catalysts that could drive the stock price higher, such as an upcoming product launch or a change in management.
Of course, value investing is not foolproof — you can still lose money if the market never recognizes the value of the stock you've invested in. It's also important to note that it can be difficult to identify undervalued stocks in today's rapidly changing markets. It is, therefore, crucial to do proper research and have a solid understanding of the value companies you select, and stick to a long-term plan.
If this sounds like too much work, you should consider investing in mutual funds that follow a value investing strategy. If your investment time horizon matches the growth map of such funds, they can offer great investment opportunities. Citi has several “value funds” to get you started on your value investing journey. Take the first step by talking to your Citi relationship manager today.
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This article is intended to provide general information about finance and investments and does not replace or should be taken as professional financial advice. The content reflects the view of the author of the article and does not necessarily reflect the views of Citi or its employees, and we do not guarantee the accuracy or completeness of the information presented in the article except information on Citibank N.A. – UAE products referenced herein.
