Value stocks are a completely unique kind of investment. With thousands of companies that are publicly traded it might seem that they are a common occurrence, but rarely is this true. In depressed economic times, these types of opportunities are more prevalent; however, in most bull markets these opportunities are less frequent. Currently we are undergoing a recession of sorts, which has brought about levels of unemployment and financial uncertainty not seen in over 25 years. While there are many who watched as their retirement portfolios were cut by 20% in this recession and subsequently lost years of accrued wealth, there are those who have the capital to invest during this time and have found an opportunity of a life-time in both the real-estate, and stock markets.

With this opportunity at hand, there has been no better time to invest for the future. Whether it be taking advantage of the historically low mortgage rates, or creating a portfolio of stocks, if done right can help secure your financial future.

What Does Value Look Like?

Value does not necessarily come in all shapes and sizes, so there is not one right way to find it. However, with that said, there are ways we can screen for value. Actually, it becomes fairly easy to screen through thousands of companies when we can group some of the common characteristics together (there are several online “Stock Screeners” that can help sort through the thousands of companies based on a plethora of metrics). One example I always like to refer to is shopping for steak. This is an example I think a lot of us can relate to. I know that when I first started to shop for my own groceries I was perplexed at all the different cuts of steak, and I can truthfully say I had no idea what I was doing. I could not tell you what a good steak looked like, for one, and on top of that, what a good price for that cut would be. With a little bit of instruction I was able to tell what a good cut was, and an appropriate price to pay for it. Additionally, I could tell you if I walked into a store and found Filet Mignon selling for $2 per lb I would have found a great value! I think this is a lot like picking stocks, because with some training and thorough analysis, it is much easier to sort through all the ground beef out there.

The thing I found most interesting is that, some of the most popular stocks can quite frequently be the most risky. There has to be a price when eventually all of us would say that the price for a piece of meat (or stock) was way too much. Maybe the maximum price I would pay is $20, while for someone else it is $30. At $30 neither of us would be willing to buy that steak. Well this happens to be similar with stocks, except with stocks most people have no clue what the company is actually worth.

When Can Value be Found?

There are several reasons why a stock may become unpopular, and in some instances the reason it became unpopular is not reason enough to justify its low price. In some cases the price for a share of a companies stock may become so much more than what it is worth and as investors begin to recognize this begin taking the profits and selling their shares. As soon as this happens the price starts to drop, and those who bought their shares recently, along with those who bought their shares months ago, begin to see their value declining, and begin to follow suit. This becomes much like a snowball rolling down a hill, and the further down the hill it rolls, the more snow and momentum it gains. This is true of stocks, because as the price declines more and more, share holders decide to take their profits and sell the shares as well. In another instance, a company may have reported earnings which did not meet expectations, and this may cause a chain reaction, in which investors who expected a large gain from the earnings announcement have now found their portfolios in an upside down position.  It is for this reason that there are often sharp decreases in the price of some of the “Hot Stocks.” This type of drop in value is often associated with a herd mentality, where large groups of people react the same way (often irrationally) because they are feeding off of the reactions of each other.