Glossary · Valuation · Beginner-friendly
Value investing
In plain English
Value investing means looking for investments that seem cheaper than they’re worth - with a plan for why the gap might close.
Everyday analogy: Hunting clearance items that are still good quality - not buying junk just because the tag is low.
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Why it matters
Value is a discipline of price vs worth - and a graveyard of “cheap” names that deserved the discount.
A bit more detail (optional)
Core idea
Buy dollars for fifty cents - in theory. In practice you need a thesis for why the market is wrong and a catalyst or time horizon for the gap to close.
Value traps
Cheap can stay cheap when the business is structurally impaired. Low P/E alone is not a margin of safety.
Simple examples
Cheap for a reason
A retailer at 8× earnings looks cheap until store traffic and margins keep falling - the multiple was a warning, not a bargain.
Value trap
A retailer screens at 8× earnings while traffic and margins keep slipping. The multiple was a warning light, not a bargain.
Easy mistakes to avoid
- Assuming every low P/E stock is a bargain
- Buying “cheap” without a reason it should recover
- Equating low P/E with a margin of safety
- Ignoring structural decline behind a cheap multiple
- Skipping a catalyst or time horizon for re-rating
Remember: Cheap needs a reason to get less cheap - otherwise it’s a trap.