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Investment Principles: Value investing to the fore in stock market

Bear market bottom or not, one thing is abundantly clear. Whether things get worse or not, there is a lot value available in the stock markets. Stock prices of strong companies have fallen along with those of overpriced ones. Hence, bargains abound.

Benjamin Graham, father of value investing, believed in buying stocks that were quoting at their liquidation values. Liquidation value means the price you pay for a company that is not operating any more. Having invested at near liquidation values, value investors wait patiently for the value to emerge and make handsome returns. Investing at the time of the Great Depression, Graham got many such opportunities.

Today, despite the sharp fall, the share prices are quoting much higher than their liquidation values, but definitely below their fair values. Taking a leaf from Graham's book, you can look for companies whose book values and market capitalisation are equal. In fact, there are instances of companies whose market capitalisation is slightly above the cash in hand. These are attractive bargains that you get very rarely. Regardless of the fact that the markets may go down further, investing in these companies may be worthwhile as you may miss the opportunity in an attempt to find the rock bottom prices.


Individual investors are having a tremendous advantage now. Institutional investors are preoccupied with redemptions and survival. Many stocks are available at attractive bargains. The best time to buy a company is when it is significantly undervalued, regardless of what the rest of the market may be doing. So, individual investors should brush up their accounting knowledge and start searching for that undervalued stock to adorn their portfolio with, which will be a multibagger a few years from now.

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