Choosing stocks that appear to be selling for less than their inherent or book worth is referred to as value investing. Value investors aggressively seek stocks that they believe the market undervalues. They think that the market overreacts to both positive and bad news, resulting in stock price changes that are out of line with a company’s long-term fundamentals. The overreaction provides an opportunity to benefit by purchasing equities at a discount.
Today’s most well-known value investor is Warren Buffett, but there are many more, including Benjamin Graham (Buffett’s professor and mentor), David Dodd, Charlie Munger, Christopher Browne (another Graham student), and Seth Klarman, a billionaire hedge-fund manager.