If you’re new to investing and looking for a strategy that focuses on long-term success rather than chasing short-term gains, value investing might be exactly what you need. Made famous by legendary investors like Benjamin Graham and Warren Buffett, value investing is a time-tested approach that emphasizes patience, discipline, and buying stocks at a discount to their intrinsic value.
Here’s a straightforward look at value investing for novices—what it is, how it works, and how to get started.
What Is Value Investing?
Value investing is a strategy based on finding and buying stocks that are undervalued by the market. In simple terms, you’re looking for good companies trading for less than what they’re truly worth.
Think of it like shopping during a sale: if you know a high-quality winter coat is worth $200 but it’s on sale for $120, you’re getting great value. Value investing applies that same logic to the stock market.
The Core Principles of Value Investing
- Buy Below Intrinsic Value
Intrinsic value is what a company is really worth, based on its fundamentals—earnings, assets, growth potential, and more. If a stock is trading below its intrinsic value, it may be a good buy. - Margin of Safety
This is your financial cushion. Even if you miscalculate a company’s value, buying at a discount lowers your risk of loss. - Long-Term Perspective
Value investing isn’t about getting rich quick. It’s about steady gains over time. Most value investors hold stocks for years—sometimes decades. - Focus on Fundamentals
Instead of chasing hot stocks or trends, value investors analyze financial statements, earnings reports, and industry trends to evaluate a company’s health. - Independent Thinking
The best value investors don’t follow the crowd. They look for opportunities others miss or misunderstand.
We Apply Value Investing in Our Private Equity Fund
At our private equity fund, we apply value investing principles to identify and acquire businesses that are fundamentally strong but undervalued by the broader market. Our approach isn’t based on speculation or market momentum—it’s grounded in deep research, rigorous analysis, and a commitment to long-term value creation.
We look for companies with:
- Strong cash flows
- Durable competitive advantages
- Quality leadership and management
- Potential for operational improvement or strategic repositioning
By investing with a margin of safety and focusing on long-term appreciation, we aim to deliver consistent returns for our partners while minimizing downside risk. Whether we’re investing in established middle-market firms or overlooked local businesses, our philosophy remains the same: buy smart, manage well, and hold until real value is realized.
How to Find Undervalued Stocks
Finding undervalued stocks takes some research. Here are a few tools and ratios that value investors use:
- Price-to-Earnings (P/E) Ratio
A lower P/E ratio may suggest a stock is undervalued (though context is important). - Price-to-Book (P/B) Ratio
Compares a stock’s market value to its book value. A P/B under 1 can be a value signal. - Dividend Yield
Companies that consistently pay dividends can be a sign of solid financial health. - Debt-to-Equity Ratio
Shows how much debt a company has relative to its equity. Lower is generally better. - Free Cash Flow
The cash a company generates after expenses. Strong, positive free cash flow is a good sign.
Famous Value Investors
- Benjamin Graham – Known as the “father of value investing,” he wrote The Intelligent Investor, a must-read for beginners.
- Warren Buffett – Graham’s student, Buffett turned value investing into a legendary career. His company, Berkshire Hathaway, has delivered decades of strong returns.
- Charlie Munger – Buffett’s long-time partner, known for his deep thinking and witty wisdom on business and investing.
Pros and Cons of Value Investing
Pros:
- Lower risk if done correctly
- Based on real data, not hype
- Encourages long-term wealth building
Cons:
- Requires patience and research
- Market irrationality can delay returns
- Not always exciting—it’s more “tortoise” than “hare”
Getting Started with Value Investing
- Read Books – Start with The Intelligent Investor by Benjamin Graham and Common Stocks and Uncommon Profits by Philip Fisher.
- Use a Stock Screener – Tools like Yahoo Finance, Finviz, or Morningstar can help you find stocks that meet value criteria.
- Start Small – Consider investing in a value-focused mutual fund or ETF (like Vanguard Value ETF or Palatium Ridge Private Equity Fund) while you learn.
- Track and Learn – Keep an eye on the performance of your stocks and learn from both wins and losses.
- Stay Consistent – Stick to your research and strategy, even when the market fluctuates.
Final Thoughts
Value investing is more than a strategy—it’s a mindset. It teaches you to be patient, analytical, and rational. While it may not deliver overnight riches, it offers something even more powerful: the potential to build lasting wealth over time, with a lower risk profile and a higher sense of financial control.
That’s why we’ve built our private equity investment approach on these very principles—because real value stands the test of time.
