Value Investing vs. Dollar Cost Averaging: A 10-Year Comparison

Investing isn’t just about following market trends - it’s about making decisions that protect your capital while seizing opportunities for long‐term growth. In this post, we compare two investment strategies: constructing a portfolio based on fundamental analysis with an emphasis on margin of safety, versus dollar cost averaging (DCA) into an S&P 500 ETF such as SXR8 (accumulating). With an initial investment of 5000 EUR and a monthly investment budget of 200 EUR, we’ll explore how these approaches have fared over the past decade, and how the Value Sages web application simplifies the journey.

This article builds on top of what we presented in the Confident Investing - Breaking the Barriers Between Active and Passive blog post.

Understanding Value Investing

What Is Value Investing?

Value investing revolves around the idea of purchasing stocks at a price below their intrinsic value. Pioneered by Benjamin Graham and later popularized by Warren Buffett, this strategy relies on rigorous fundamental analysis - using metrics like discounted cash flow (DCF), price-to-earnings (P/E) ratios, to name a few - to identify mispriced stocks. Investors who follow this approach seek a “margin of safety” that minimizes downside risk.

“The margin of safety is always dependent on the price paid.” - Benjamin Graham

Key Metrics at a Glance

• Discounted Cash Flow (DCF): Provides an estimate of the company’s intrinsic value based on future cash flows.
• P/E Ratio: Compares the company’s current share price to its per-share earnings.
• Book Value: Reflects the net asset value of the company on its balance sheet.

While our in-depth articles cover the nuts and bolts of DCF and other metrics, this post provides an overview to reinforce why these numbers matter when choosing a value investment strategy.

Comparing Investment Strategies: Value Investing vs. Dollar Cost Averaging

The Investment Scenarios

Imagine two approaches:

• Value Investing Portfolio: An investor builds a portfolio by selecting companies that are trading below their intrinsic value with a solid margin of safety.
• Dollar Cost Averaging (DCA) into SXR8: The investor regularly invests in an ETF tracking the S&P 500, spreading risk over time.

With an initial 5000 USD and 200 USD added monthly, we can examine the differences between these strategies over a 10-year period.

Constructing a Convincing Value Portfolio

To illustrate real-world results, we suggest selecting a diverse group of companies that have historically presented solid value opportunities. For example, consider including:

• Apple (AAPL): Despite being a tech giant, Apple has periodically traded below its intrinsic value during market dips.
• Microsoft (MSFT): Known for robust earnings and strong fundamentals.
• Johnson & Johnson (JNJ): A defensive stock with steady dividends and resilient performance.
• Procter & Gamble (PG): Offers stability with its consumer staple products.
• Coca-Cola (KO): A well-known brand with enduring market strength.

By back-testing the historical performance of these companies, we can create a portfolio that demonstrates how selecting stocks with a margin of safety might lead to superior long-term performance, especially during market volatility.

Starting with an even distribution - 1000 USD in each of the companies and then putting aside 200 USD each month. We are not investing these 200 USD each month, but rather putting them aside and waiting for the price of the companies to get to a desired margin of safety range.

This approach will allow the investor to take advantage of the undervalued period between 2015 and 2017 for most of the companies in the portfolio. Temporary dips during 2018, the crash in 2020, slight correction in 2023, 2024 and 2025.

The Dollar Cost Averaging Approach

In contrast, DCA involves investing the same amount at regular intervals into a diversified ETF (e.g., SXR8). This strategy smooths out market fluctuations and minimizes the risk of investing a large sum at a market peak. While DCA offers lower volatility, it may not capture the potential high returns of buying undervalued stocks at a discount. In this case we also started in March 2015 with 5000 USD invested directly in SXR8 and continues by investing 200 USD in the same ETF each and every month. The average yearly growth of SXR8 is calculated at 12%.

Detailing the Difference

Period analyzed - March 2015 - March 2025. Actual Value portfolio value of investments, remaining cash may differ due to specific decisions made by individual interpretations of fundamental data in the past. The listed figures assume investment resiliency and strict focus to the established strategy.

See full list of the simulated value portfolio stock purchases

How Value Sages Empowers Your Investment Journey

Automated Intrinsic Value Calculations

Value Sages provides an intuitive intrinsic value calculator where users can input key financial metrics. The tool then quickly computes the estimated intrinsic value, offering a transparent view of the margin of safety available for each stock.

Test early, provide feedback, and influence the final product.

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Feature Highlight:

• Quick Calculation: Automatically captures earnings, growth rates, discount rates. Users can input expectations (e.g. returns, etc.) to obtain a value estimate.
• Automated Updates: As companies release new financial reports, the intrinsic value is automatically recalculated, ensuring investors always have the latest information.

Margin of Safety Based Stock Screener

The application also includes a stock screener specifically designed to filter companies that meet stringent margin of safety criteria. This enables investors - especially those who appreciate data-driven tools - to easily spot potential investment opportunities.

Key Takeaways

• Value Investing: A strategy centered on purchasing stocks at prices below their intrinsic value, providing a cushion against market volatility.
• Dollar Cost Averaging: Offers a steady, disciplined approach by spreading out investments, though it might miss the upside potential of undervalued opportunities.
• Value Sages Advantage: Our web application equips you with a margin of safety stock screener, an intrinsic value calculator, and automated financial updates to support smarter, data-driven decisions.

By understanding and comparing these two strategies, beginner to intermediate investors can better navigate their investment journey, particularly during volatile market cycles. The tools and insights provided by Value Sages not only simplify the evaluation process but also help build a resilient portfolio designed for long-term success.