Most investors intuitively understand that identifying a dislocation—a mismatch between the price of an asset and its underlying worth—is the foundation of successful investing. Benjamin Graham formalised this common-sense idea into a rigorous investment philosophy in the 1930s, one that has since produced some of the most compelling long-term track records in market history, including those of Warren Buffett and Charlie Munger at Berkshire Hathaway. Value investing is the discipline of estimating the intrinsic value of a business and purchasing its stock only when the market price offers a meaningful discount—what Graham called the margin of safety. The approach asks investors to think like business owners. This article explains how value investing works, where it comes from, what the evidence says about its long-run returns, and how professional investors can apply its principles to find undervalued stocks.
