| Value Investing |
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This style of investing was established by Benjamin Graham , who taught many famous investors during his tenure at Columbia University . In his book The Intelligent Investor (last revised in 2003), he advocates the important concept of Margin Of Safety , which calls for a cautionary approach to investing. In terms of picking stocks, he recommends defensive investment in stocks trading not far from their tangible book value as a safeguard to adverse future developments often encountered in the stock market. However, the concept of value (as well as "book value") has evolved significantly since the 1970s . Book value is meaningful only in some traditional stable industries where the value of an asset is well defined. When an industry is going through fast technological advancements, the value of its assets is not easily estimated. Sometimes, the production power of an asset can be significantly reduced due to competitive disruptive innovation and therefore its value can suffer permanent impairment. One good example of decreasing asset value is a personal computer. An example of where book value does not mean much is the service and retail sectors. One modern model of calculating value is the Discounted Cash Flow model (DCF). The value of an asset is the sum of its future Cash Flow s, discounted back to the present. REFERENCES SEE ALSO EXTERNAL LINKS |
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