Benjamin Graham’s philosophy in his seminal work, *The Intelligent Investor* was elegantly simple and can be described in one sentence: “by purchasing shares of companies trading at discounts to their intrinsic values, investors can outperform the broader market over the long run.”
Despite the popularity of value investing, Graham’s approach challenges two widely held beliefs in finance. The first is the efficient market hypothesis, which claims market prices always reflect a stock’s true value. The second is modern portfolio theory, which advocates for broad diversification over concentrated bets on individual stocks.
The long-term success of famous value investors like Warren Buffett, Seth Klarman, and Joel Greenblatt has proven that these mainstream beliefs can be wrong. Yet, many investors shy away from value investing due to its demand for patience, something in short supply in today’s fast-paced, information-driven world.
Value investing’s edge lies in recognizing that markets are not always efficient. By focusing on long-term earnings and buying with a margin of safety, value investors profit from market mistakes. Small cap stocks, often overlooked and undervalued, present fertile ground for finding mispriced gems. History shows that buying solid small companies at attractive valuations tends to yield market-beating returns over time.
Ultimately, while many chase hot stocks and short-term gains, value investing offers a time-tested, logical, and disciplined approach. By focusing on the difference between price and value, and investing thoughtfully rather than emotionally, patient investors can achieve superior long-term performance.
Sven Franssen