Ask the Dollar Diva By Dorothy Rosen • Bankrate.com

What is value investing?

Dear Dollar Diva,
What is value investing?

Value investing is investing in good companies when their prices are in the sewer. The operative word here is "good" because value investors tend to buy and hold. They hate paying broker commissions and taxes.

The market often kisses off a good company when its quarterly earnings are disappointing, or it's slapped with a mega lawsuit. The company's stock price drops because nobody wants to buy it, and value investors go bottom fishing, scooping up the cheap shares in anticipation of a future windfall. The big hurt comes if the market stays out of love with the stock. Even if the company is profitable, the only number that really counts when you want to sell is what the market is willing to pay.

Here are some of the things the value investor looks for in a company:

• Low price/earnings ratio -- this will exclude most Internet companies
• Bad news about a company -- when everyone else sells, driving the price down, the value investor buys
• Big dividends -- dividends are money in the bank
• Earnings -- this also will exclude most Internet companies

You don't have to be a Dow Jones Industrial Average company to be considered by a value investor, but you do have to have a good track record.

Warren Buffet and Peter Lynch are two venerable, modern-day value investors. Warren Buffet keeps his methodology close to the chest, so you have to learn about it either by reading his famous Chairman's letters in the Berkshire Hathaway annual reports or through books written by others, such as Robert Hagstrom's The Warren Buffet Way.

It's easier to get into Peter Lynch's head. Go to Amazon.com and fill up your shopping cart with his offerings: Beating the Street, Learn to Earn, and One Up on Wall Street.

DOROTHY ROSEN has a master's degree in finance, with a specialization in accounting, from the Kellogg Graduate School at Northwestern University in Evanston, Ill. Rosen has more than 15 years of experience in the financial arena, serving in Illinois and Florida as a certified public accountant, financial consultant, expert witness and educator. She is owner of Dorothy Rosen, CPA, a public accounting firm that serves individuals and small businesses.