Strategie
Value Investing in the Graham and Buffett Tradition
Key takeaways
- Value investing buys companies for less than their intrinsic value — the so-called margin of safety.
- Graham focused on statistically cheap stocks; Buffett added an emphasis on business quality.
- P/B, P/E, and EV/EBITDA are the basic tools for identifying value stocks.
- Value strategies go through extended periods of underperformance (so-called value drought) — that will test your patience.
- The combination of quality and cheapness (quality at a reasonable price) is today the dominant approach.
Value investing is a strategy that buys shares in companies at a price lower than their intrinsic (fundamental) value — and waits for the market to close that gap.
Benjamin Graham: the father of value investing
In The Intelligent Investor (1949), Graham articulated the core principle: buy with a sufficient margin of safety. His approach was statistical — he looked for stocks with a low P/B (price-to-book) or low P/E, without needing a deep analysis of each company. He worked with a diversified basket of cheap stocks in the expectation that they would earn above average on aggregate.
Warren Buffett: quality at a fair price
Buffett took Graham's approach further. Under the influence of Charlie Munger, he realised that a wonderful company at a fair price beats an average company at a great price. The key became finding companies with a durable competitive advantage (economic moat) — strong brand, network effect, switching costs. Price still matters, but business quality takes precedence.
- P/B below 1 — the company trades below its book value (classic Grahamian signal).
- Low P/E — the company earns a lot relative to its price.
- High and stable ROIC — the company allocates capital efficiently (Buffettian filter).
Value drought and patience
Value stocks went through a pronounced period of underperformance relative to growth stocks in the years 2010–2020. That drove many investors away. Every strategy has its cycle — value is no exception. For the retail investor who does not want to pick stocks actively, there are value ETFs (e.g. iShares Edge MSCI World Value Factor) that replicate this approach systematically.
Where to start
Value investors typically begin by reading Graham's The Intelligent Investor or the annual reports of Berkshire Hathaway, where Buffett explains his thinking. On management quality, the key filter in Buffett's approach, we wrote in the previous breakdown. Choosing a brokerage platform is covered in the guide for Czech investors.
FAQ
What is value investing?
A strategy that buys stocks for less than their intrinsic value. It is grounded in the principle of margin of safety — a buffer that protects against errors in estimation and adverse surprises.
What is the difference between Graham and Buffett?
Graham looked for statistically cheap stocks (low P/B, P/E) without needing deep analysis. Buffett added an emphasis on business quality — he looks for companies with a durable competitive advantage at a reasonable, not necessarily cheap, price.
What is a value trap?
A stock that looks cheap but is cheap for a good reason — a dying business, poor leadership, or structural industry change. Cheapness without quality is a trap.
How can I practise value investing as a retail investor?
The simplest route is value ETFs (factor funds) that systematically select cheap stocks according to defined criteria. Direct stock picking requires deep analytical work and a great deal of patience.