Slice the numbers, most stocks are not worth their present valuation in the market. Most aren't even anywhere close. It all boils down to simple arithmetic. The generous flotations by the new age companies has increased the number of shares outstanding to a level where the market price cannot be justified either by present cash flows or expected cash flows.

The investors bet on more investors. Some of these stocks lack any credible fundamentals, investors must hope that others pile in after them to bid shares higher. A classical case of the Greater Fools Theory at work. The smart investors are however getting back to the basics of intelligent investing. Value investing has slowly and steadily resurfaced in the markets replacing the so called RGRC (Rapid Growth Rapid Crash) stocks.

The last week of may (May 22 – May 27) saw the trend emerging with renewed interest in the stocks of FMCG, Pharma, Cement and Petroleum. Investors are writing their own formulae to ensure fair gains with their investments. Punters have gained an average of 20 to 25 per cent at the end of last week through their calculated moves. The general investor and fund managers alike have ditched the High Risk High Return stocks for the value based old economy stocks.

The FMCG and Pharma sectors rallied this week and are expected to grow by 20 percent, the Techie’s stayed off the rally while the heavyweights like HLL and ITC did the balancing act. The investors have shifted their perspective and also have begun screening the scrips in the market to arrive at the best buys and sells.

The inflow of FII funds on Wednesday and Friday last week to the tune of Rs.480 crore has helped the old economy rally while FIIs weighed down the tech stocks. The prediction of a good monsoon for the 13^th year in a row and the Rupee stabilizing around the 45 levels to the dollar has created the right mood for the investor to indulge in value investing. Let us now get an understanding of the concept of value investing as against momentum investing.

Enter The New Strategist – The Value Investor : A value investor looks for a stock that is trading below its actual worth.

What has Value Investing to Offer and How do you about it? Value investing involves less volatility and less downside risk if the markets start to fall. This approach to investing is criticized that it often times doesn't provide instant gratification. Many investors want to see their stock double within weeks of buying it. Value investors often wait years. Investors can go about value investing by comparing a stock with other stocks in the same league or otherwise. For example one can do so by comparing P/E ratios of two stocks. Another way of going about it is to know the company well and determine aspects which have and have not been factored into the price.

Meet the Counter Strategist - The Momentum Investor : Momentum is based on the stock price rising because more and more people keep buying the stock. Such momentum investors are essentially short term investors who have an eye on short term profits. The theory is that if stocks are actively traded and continue to move up, this positive momentum will continue as leading stocks continue to lead. More buyers than sellers should drive the price of the stock higher. The investor will most likely compare the stock to other stocks in the same industry to determine what is a fair price to pay for the stock.

Be it buying or selling of stocks only the discerning investor is going to be the winner in this market. Momentum investing may pay in the short run but over a longer time frame it tends to be a zero sum game. Value investing on the other hand, is a much more of a common sense strategy. Unfortunately people never exercise their common sense while dealing in stocks. Is it not time people started adopting a common sense approach to investing? After all, that is what value investing is all about.

Deepak V Kuriakose