A value manager buys stocks below their fair value, identifying discount stocks that can increase in value over time. They use the price/book value ratio to find undervalued stocks and can make recommendations on when to sell. With strong research skills and market instincts, they can generate sizeable returns with minimal risk.
A value manager is an investor or investment professional who focuses on buying stocks that are currently for sale below their current fair value. This type of investment activity requires the manager to have a solid understanding of how to identify discount stocks that can increase in value over time and can be sold at a later date for a substantial return. Working with value stocks is somewhat different from working with growth stocks, where the goal is to buy shares of stocks that are likely to increase in value over time and hold for the long term.
When searching for the right type of stocks for this type of strategy, the value manager will take a close look at what is known as the price/book value ratio. This ratio is simply the comparison between the sale price of each share and the estimated value of the share. By taking a close look at stocks that are currently selling for a unit price that is below book value, the investor immediately realizes a certain amount of gain. If the stock also demonstrates some potential to increase in value over time, then the opportunity to earn additional return by holding the stock for a while and then selling it at a later date increases significantly.
A competent value manager can identify value stocks with relative ease, assess the past and current performance of the stock, and decide whether the current price and projected future movement of the stock is a good fit for the investor. If so, the manager will usually consult with the investor and hopefully get authorization to purchase a number of shares for the investor. As part of the process, the manager will sometimes make recommendations on how long to hold the stock until it is sold, helping the investor get the most return.
An investor who also doubles as a value manager can make a lot of money by buying the right value stock offerings at the right time, holding them until the price rises substantially, and then selling them at a profit. Depending on the nature of the market where the shares are traded, the turnaround may not be more than a day or two, or take a month or more. The volatile markets where these discount stocks are traded can allow an investor to factor in any highly probable event that will push the stock price up to buy low and sell high in a matter of a few days. With a combination of strong research skills, reliable instincts, and the ability to accurately read trends in the market, a value manager can quickly generate sizeable returns while assuming a very small amount of risk.
Smart Asset.
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