ECB Action Sheds Doubts on Yield Differentials

What Is Value Investing?
Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value. Value investors actively ferret out stocks they think the stock market is underestimating. They believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond to a company's long-term fundamentals. The overreaction offers an opportunity to profit by purchasing stocks at discounted prices.

Warren Buffett is probably the best-known value investor today, but there are many others, including Benjamin Graham (Buffett's professor and mentor), David Dodd, Charlie Munger (Buffet's business partner), Christopher Browne (another Graham student), and billionaire hedge-fund manager, Seth Karman.

KEY TAKEAWAYS
Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.
Value investors actively ferret out stocks they think the stock market is underestimating.
Value investors use financial analysis, don't follow the herd, and are long-term investors of quality companies.
Value Investing
Investopedia / Sydney Saporito https://stockstrategy.net/
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Understanding Value Investing
The basic concept behind everyday value investing is straightforward: If you know the true value of something, you can save a lot of money when you buy it. Most folks would agree that whether you buy a new TV on sale, or at full price, you’re getting the same TV with the same screen size and picture quality.

Stock prices work in a similar manner, meaning a company’s share price can change even when the company’s valuation has remained the same. This means, strictly speaking, there is no such thing as a true, or intrinsic, value of the stock of a given company. But there are relative values.


Market participants can buy or sell shares without being tethered to an objective price figure. Therefore, stocks, like TVs, go through periods of higher and lower demand leading to price fluctuations. If the company's fundamentals are the same, and its future opportunities are unchanged, then the value of the shares is largely the same even though the price differs.

Value investing developed from a concept by Columbia Business School professors Benjamin Graham and David Dodd in 1934 and was popularized in Graham's 1949 book, "The Intelligent Investor."
Just like savvy shoppers would argue that it makes no sense to pay full price for a TV since TVs go on sale several times a year, savvy value investors believe stocks work the same way. Of course, unlike TVs, stocks won't go on sale at predictable times of the year such as Black Friday, and their sale prices won’t be advertised.

Value investing is the process of doing detective work to find these secret sales on stocks and buying them at a discount compared to how the market values them. In return for buying and holding these value stocks for the long term, investors can be rewarded handsomely.

Intrinsic Value and Value Investing
In the stock market, the equivalent of a stock being cheap or discounted is when its shares are undervalued. Value investors hope to profit from shares they perceive to be deeply discounted.

Investors use various metrics to attempt to find the valuation or intrinsic value of a stock. Intrinsic value is a combination of using financial analysis, such as studying a company's financial performance, revenue, earnings, cash flow, profit, and fundamental factors. It includes the company's brand, business model, target market, and competitive advantage. Some metrics used to value a company's stock include:
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Price-to-book (P/B), which measures the value of a company's assets and compares them to the stock price. If the price is lower than the value of the assets, the stock is undervalued, assuming the company is not in financial hardship.
Price-to-earnings (P/E), which shows the company's track record for earnings to determine if the stock price is not reflecting all of the earnings or is undervalued.
Free cash flow, which is the cash generated from a company's revenue or operations after the costs of expenditures have been subtracted.
Free cash flow is the cash remaining after expenses have been paid, including operating expenses and large purchases called capital expenditures, which is the purchase of assets like equipment or upgrading a manufacturing plant. If a company is generating free cash flow, it'll have money left over to invest in the future of the business, pay off debt, pay dividends or rewards to shareholders, and issue share buybacks.

Of course, there are many other metrics used in the analysis, including analyzing debt, equity, sales, and revenue growth. After reviewing these metrics, the value investor can decide to purchase shares if the comparative value—the stock's current price vis-a-vis its company's intrinsic worth—is attractive enough.

Habits
The word habit is pulled from the Latin words habere, which means "have, consist of," and habitus, which means "condition, or state of being." It also is derived from the French word habit (pronounced \ah-bee\), which means clothes.[11] In the 13th century, the word habit first just referred to clothing. The meaning then progressed to the more common use of the word, which is "acquired mode of behavior."[11]


Formation
Habit formation is the process by which a behavior, through regular repetition, becomes automatic or habitual. This is modeled as an increase in automaticity with the number of repetitions up to an asymptote.[13][14][15] This process of habit formation can be slow. Lally et al. (2010) found the average time for participants to reach the asymptote of automaticity was 66 days with a range of 18–254
days.[15]
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There are 3 main components to habit formation: the context cue, behavioral repetition, and the reward.[16] The context cue can be a prior action, time of day, location, or anything that triggers the habitual behavior. This could be anything that one's mind associates with that habit, and one will automatically let a habit come to the surface. The behavior is the actual habit that one exhibits, and the reward, such as a positive feeling, therefore continues the "habit loop".[17] A habit may initially be triggered by a goal, but over time that goal becomes less necessary and the habit becomes more automatic. Intermittent or uncertain rewards have been found to be particularly effective in promoting habit learning.[18]

A variety of digital tools, online or mobile apps, have been introduced that are designed to support habit formation. For example, Habitica is a system that uses gamification, implementing strategies found in video games to real-life tasks by adding rewards such as experience and gold.[19] However, a review of such tools suggests most are poorly designed with respect to theory and fail to support the development of automaticity.[20][21]

Shopping habits are particularly vulnerable to change at "major life moments" like graduation, marriage, the birth of the first child, moving to a new home, and divorce. Some stores use purchase data to try to detect these events and take advantage of the marketing opportunity.[22]
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Some habits are known as "keystone habits," and these influence the formation of other habits. For example, identifying as the type of person who takes care of their body and is in the habit of exercising regularly, can also influence eating better and using credit cards less. In business, safety can be a keystone habit that influences other habits that result in greater productivity.[22]

A recent study by Adriaanse et al. (2014) found that habits mediate the relationship between self-control and unhealthy snack consumption.[23] The results of the study empirically demonstrate that high self-control may influence the formation of habits and in turn affect behavior.
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Goals
The habit–goal interface or interaction is constrained by the particular manner in which habits are learned and represented in memory. Specifically, the associative learning underlying habits is characterized by the slow, incremental accrual of information over time in procedural memory.[9] Habits can either benefit or hurt the goals a person sets for themselves.

Goals guide habits by providing the initial outcome-oriented motivation for response repetition. In this sense, habits are often a trace of past goal pursuit.[9] Although, when a habit forces one action, but a conscious goal pushes for another action, an oppositional context occurs.[24] When the habit prevails over the conscious goal, a capture error has taken place.

Behavior prediction is also derived from goals. Behavior prediction acknowledges the likelihood that a habit will form, but in order to form that habit, a goal must have been initially present. The influence of goals on habits is what makes a habit different from other automatic processes in the mind.[25] https://www.gold-pattern.com/en
The following is a description of a classic goal devaluation experiment (from a Scientific American MIND guest blog post called Should Habits or Goals Direct Your Life? It Depends) which demonstrates the difference between goal-directed and habitual behavior: