Value Investing and Values-Based Investing Gain Momentum
Investors are looking for stocks that are underpriced, and more of them want to invest not just in value, but also in values.
The new paradigm of investing takes into consideration both sides of the proverbial coin: the quantitative and the qualitative. Investors are looking back at historical returns and are also looking forward at the future implications of their investments, reviewing both the numbers and the narratives.
They’re already familiar with the quantitative side of the coin — returns, yields and percentages — and they’re becoming increasingly interested with the qualitative side of the coin — business objectives, culture and practices. The new paradigm of investing focuses on both compounding interest and interests — value investing and values-based investing.
People mainly invest their money to preserve and grow their wealth. Investing cash gives your money the potential to increase in value and outpace inflation. Outpacing inflation is top of mind for everyone these days, as we continue battling the inflation dragons heating the economy. When investment returns don’t outpace the inflation dragons, the loss of purchasing power ensues. When investment returns do outpace the inflation dragons, the gains contribute to wealth creation.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
For these reasons, it's incredibly important to consider returns, yields and percentages when investing. Investors construct their investment strategy based on various factors such as risk tolerance, financial goals and investment time horizon. An investment strategy may include value investing, depending on the desired strategy and the market cycle.
What Is Value Investing?
Value investing is the buying of stocks that appear underpriced relative to a company’s fundamentals. Value stocks are equities trading at a lower price than their intrinsic value. Essentially, the stock appears to be “on sale.”
To determine whether a stock is underpriced, analysts and investors look to quantitative metrics such as: price-to-earnings (P/E) ratio, price-to-book (P/B) ratio and earnings per share (EPS).
Qualitative factors are also taken into consideration — cyclical business, headline news and the overall market cycle.
What’s particularly interesting at the moment is the financial sector. The financial sector is value-dominated, and analysts and investors have a close eye on bank stocks as we continue seeing bank failures and acquisitions.
Value investing tends to get more attention during bear markets and high inflation. Given the current market, value investing is gaining emphasis in investment conversations.
What Is Values-Based Investing?
What’s also gaining emphasis in investment conversations is that of values-based investing. Values-based investing is the buying of stocks that align with your personal fundamentals and core values. This investment approach invites the investor to consider factors on the qualitative side of the coin.
To determine whether a stock is aligned with your values, you might consider a company’s business objectives, culture and practices.
For example, perhaps a detergent company tests its products on animals in an inhumane way. This company’s practices may not be something that you want to get behind. You vote with your wallet when you decide to invest in company A over company B. This is powerful. And with so many investment options available today, it’s easier to invest in companies that align with your values, all the while achieving your portfolio objectives.
Value and values-based investing are gaining momentum in the current environment. (For more about this, see the article Value Investing Is Back.)
Market volatility, bear markets and high inflation are usually catalysts for revisiting your investment portfolio. Many investors are doing so with both value and values in mind, truly considering both sides of the proverbial coin.
Optimizing for wealth creation and positive impact for the future is more accessible now than ever before. As we slay the dragons and escape the bears, it’s possible to run toward a prosperous and sustainable future.
Recently named one of the Top 100 Women of the Future, Jennifer is a certified Private Wealth Advisor who founded Invisible Wealth, which provides strategic, future-forward, consultancy services. Jennifer has worked at some of the top Private Wealth Management institutions in the world, namely Goldman Sachs, JPMorgan and Fidelity. She earned her Juris Doctor from Suffolk University Law School in Boston and her Certified Private Wealth Advisor designation from Booth Business School in Chicago. While at Fidelity, she developed a proof of concept and prototype for an enterprise solution, which was advanced into incubation.
-
Six Ways Women Can Overcome Any Financial Obstacles Holding Them Back
To improve your financial situation, focus on empowering yourself first.
By Kiplinger Advisor Collective Published
-
Should You Enroll in Medicare if You Still Have a Job?
This question is being asked more than ever these days, so here’s what you can do when it comes to making Medicare decisions while you’re still working.
By Jae W. Oh Published
-
Should You Enroll in Medicare if You Still Have a Job?
This question is being asked more than ever these days, so here’s what you can do when it comes to making Medicare decisions while you’re still working.
By Jae W. Oh Published
-
Three Big Ways That Life Insurance Can Be a Lifeline
Life insurance not only provides a safety net for loved ones and leaves behind a lasting legacy, but the cash value can also help during financial hardship.
By Steve Sugumele Published
-
Romance Scams That Target Older Adults Rising: What to Do
Here are some tips to help you avoid falling for a scam, especially when a scammer tries to prey on your affection.
By Patrick M. Simasko, J.D. Published
-
Lessons Learned From Britney Spears’ Financial Conservatorship
The pop star’s recent memoir reveals the toll her involuntary conservatorship took on her and spotlights the drawbacks of these legal arrangements.
By Stacy Francis, CFP®, CDFA®, CES™ Published
-
Four Things to Know About Managing a Loved One’s Finances
Figuring out when it’s time and knowing how to talk about it are just the start. You also need info about estate plans, insurance and health care decisions.
By Tony Drake, CFP®, Investment Advisor Representative Published
-
Three Tax-Smart Strategies for Real Estate Investing
Opportunity zones, Delaware statutory trusts and real estate income funds can help investors maximize gains and mitigate taxes.
By Dwight Kay Published
-
Can Language Apps Teach You to Speak a Foreign Language?
Your expectations might be too high if you think an online language platform can teach you to have a meaningful conversation in a foreign language.
By H. Dennis Beaver, Esq. Published
-
Avoid Surprises: Don’t Procrastinate on Your Taxes
You really should start thinking about next year’s taxes immediately after filing this year’s. Better tax efficiency could save you some serious dough.
By Jared Elson, Investment Adviser Published