Value investing

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5. Undervalued assets - introduction

Value investors like undervalued assets because they provide a safety margin.

A company's share price may fall, but it won't usually fall far below the value of its saleable assets and, if it does, the discrepancy is usually spotted and corrected.

Buy a ten pound note for eight pounds, the reasoning goes, and you can't go far wrong.

Unfortunately, valuing assets is subjective.

It's not always easy to tell whether you are looking at a ten pound note or a fiver.

• Investors used to place enormous faith in tangible assets, meaning buildings, land and plant.
• Since the 1990s, the real value of some companies is often perceived to lie in its intangible assets like brands, patents and trademarks, and goodwill. Think of Nike, Coca-Cola or Amazon.com.

How on earth does a private investor value a brand though? It's almost impossible. In practice, you have to stick to tangible assets, which is why property companies are popular with value investors.

1. What is value investing? 2. Ben Graham 3. Does value investing suit you? 4. Back in fashion 5. Undervalued assets - introduction 6. Undervalued assets - property companies 7. Debt 8. Earnings 9. Earnings - an example 10. Dividends 11. Ratio of market capitalisation to sales 12. Warren Buffett's principles 13. Why do stocks become undervalued/overvalued? 14. Conclusion

• Value Growth Investing