The value of value investing

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: One of the simplest—yet the most ignored —investment concepts is value investing. It is something that has inherently been woven into our psyche as consumers, but continues to elude our understanding as investors. Value investing has a simple logic: buy things cheap. This means that stocks should be bought at a price that is less than their actual worth. If you feel that a stock’s current price is less than what it could be at a future date, then buy it now. Value investing is as easy as that.

However, unfortunately, value investing hasn’t gained much ground in India. The concept has failed to catch up largely because Indian markets are growth and momentum driven. When investors are busy chasing returns, it is hard to be patient and look at stocks that are undervalued. There have been a few funds that have made noises about value investing, but none are dedicated to it. Although that is about to change later this month, Fidelity Investments is launching India’s first value investing fund. It will be interesting to see how the concept is adapted by the AMC and how it is accepted by the Indian investors.

One of the reasons why value investing isn’t followed much in India is that it is an unglamorous concept; it is just as unfashionable as its original conceptualizer Benjamin Graham and his ardent follower Warren Buffett. Hailed as the world’s smartest investors, with reasons aplenty, Buffett has recently decided to pay a huge sum of money to become the owner of BNSF, America’s second-largest railway company. BNSF has a network that is as large as the Indian railways and is touted to be Buffett’s largest investment ever. He already owns about 22% of the company and is reportedly now paying $26 billion (Rs 1.21 lakh crore) for the rest of the stake.

At first thought, this seems to be such an unglamorous investment. When was the last time that a tycoon bought a railway? Not in recent memory, especially since the modern-day tycoons have been intoxicated by planes, alternative energy, technology and such. In fact, the last railway stock boom ended way back in 1840. And yet, Warren Buffett has decided to invest a humongous amount in such an unexciting business. This, for me, is a classic example of true value investing.