Kenneth Orr on The Art of Value Investing
Understanding Intrinsic Value
An Investment Paradigm
Value investing is an investment strategy where securities trade for less than their intrinsic values. Investors seek stocks that are considered ‘undervalued’ in the market, believing that current price fluctuations do not align with the company’s long-term fundamentals. Value investors ultimately profit off of irrationality and market overreactions to various factors including reports of declined revenue or a significant decrease in earnings.
Kenneth Orr — a Chief Investment Officer of KORR Acquisitions located in Old Westbury, New York, states that through a comprehensive analysis, value investors identify stocks where there is a gap between current price and intrinsic value, assuming there is high growth potential. Kenneth claims that quantitative value investment strategies are becoming increasingly popular and outlines some of the key components of the method.
Intrinsic value refers to the ‘fundamental’ value of a security as opposed to the current market price. Value investors purchase stocks under the impression that a company is valuable as an ongoing business. Investors perform a comprehensive analysis to look at both qualitative and quantitative aspects of a company, taking into consideration a variety of external factors. By performing an analysis, investors are more likely to gain sufficient returns on their investment.
What Do Investors Look For?
According to Kenneth Orr, investors searching for undervalued stocks will consider a variety of factors when performing an analysis of a company and before selecting an investment candidate. These factors include searching for low price-to-book ratios, high-dividend yields, a debt to equity ratio of less than one, and strong earnings for an extended period. Calculating intrinsic value can also be subjective, as some investors may place more weight on different factors. Ultimately, value investors are primarily concerned with long-term business fundamentals as opposed to other influences on stock prices.
Value Investing & Having a Margin of Safety
Many savvy investors practice the art of value investing, hoping to gain a profit when an asset increases in market value. A margin of safety is a principle of value investing, where an investor will only purchase securities when the market price is significantly lower than the intrinsic value or calculated price. Having a margin of safety gives investors room for error, while still generating a substantial profit.
An Effective Investment Strategy
Kenneth Orr states that calculating intrinsic value will not mitigate risk or eliminate all loss; however, value investing it is a proactive means to measure the financial state of a company. With an extensive professional resume, Kenneth is a respected investment officer and is an activist for undervalued publicly traded companies. He states that ultimately, value investing is a powerful strategy individuals can utilize to generate capital.