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Value Investing Method

value-investors

As mentioned in the article What is financial freedom? , if you want to achieve financial freedom early, you must start investing as soon as possible to leverage the power of compound interest in growing your wealth.

On the topic of investing, I wrote a dedicated post on the Passive Investing Method with Index Funds specifically designed for those with limited financial knowledge who still wish to invest with a moderate return at low risk.

In this article, I will introduce another classic investment strategy for those who are more ambitious and seek higher investment returns — value investing.

1, What is value investing?

Suppose one fine day, a somewhat "quirky" stranger offers to sell you a 500,000 VND ($19.23) banknote for only 10,000 VND ($0.38). Realizing this is an incredibly lucrative deal, you decide to pay 10,000 VND ($0.38) to get their 500,000 VND ($19.23) bill → That is value investing.

what-is-value-investing

In short and plain terms: Value investing is an investment strategy based on buying assets priced lower than their intrinsic value.

Value investing is most commonly discussed in the context of the stock market, where Benjamin Graham first introduced it in his book "The Intelligent Investor," and where his student, Warren Buffett, applied it with extraordinary success throughout his career. In reality, however, beyond stocks, this method can be applied to almost every area of life.

As you can see, value investing is not merely a financial technique; it is a mindset that helps us evaluate and choose to invest in things that bring genuine value to our lives.

2, How to apply the value investing method?

Today, value investing has gained widespread popularity, drawing interest from many investors and leading to an explosion of resources including books, articles, and videos. However, not all sources are truly reliable. Much of the available material simply rehashes core ideas with flashy terminology, making it difficult for readers to grasp the true essence of the approach.

Based on my personal experience and investment journey, I will outline my approach along with materials I consider "worth reading" to help us study and apply this investment philosophy effectively.

Step 1 - Cultivate knowledge

Before jumping into investing, we should equip ourselves with two essentials:

In practice, investing does not require deep mastery of complex financial theories — those belong to academic researchers. However, to invest effectively, you must build a solid foundation of basic financial knowledge . This includes the ability to read and interpret financial statements, such as asset structure, income statements, and cash flows. To gain these fundamentals, pick up a textbook on financial statement analysis (I previously read the Financial Statement Analysis textbook from the National Economics University).

As for cultivating a value investing mindset, I recommend the following resources:

There are countless other resources available. However, in my experience, once you explore what I listed above, you will realize most other materials express the exact same underlying concepts using different words.

Therefore, once you possess the core value investing mindset, stop spending excessive time reading investment books; focus your time and energy on researching and analyzing real businesses (i.e., practicing) instead .

Step 2 - Build investment criteria

Every investor should establish their own set of criteria for selecting companies. These criteria serve as a filter to ensure we pick businesses aligned with our personal style while filtering out weak or risky operations.

investment-checklist

We can build our customized investment criteria by:

You can review my company evaluation criteria in the article Business Analysis Method !

Step 3 - Analyze businesses

This is the most laborious phase for a fundamental investor , requiring extensive hours spent on what many might view as "dry" and "tedious" work — analyzing businesses.

analysis

Using the criteria defined in Step 2, business analysis involves thoroughly evaluating a company across multiple dimensions, such as:

Each item requires gathering data and evaluating multiple facets. Because this is far from simple, investors must practice patiently to hone their knowledge and analytical skills over time.

Time permitting, I will share more of my personal business analysis framework in future posts.

Step 4 - Choose the right investment timing

Finally, after thorough analysis and selecting businesses that meet our criteria, wait patiently to enter a position when the company's market capitalization falls below our estimated valuation by a sufficient margin of safety (typically at least 20% below intrinsic value).

Always remember that a great company is not necessarily a great investment unless its market valuation is cheap enough to buy . Exercise caution and calculate the timing and price range before deploying capital.

what-is-value-investing

There will be periods when we must wait a long time for asset prices (stocks, real estate, etc.) to discount deeply enough. Maintain discipline and avoid losing patience — discipline is what protects your capital.

What should you do while waiting? Use that time to research other companies and maintain a watchlist of high-quality businesses, ready to act whenever market events cause quality assets to be sold at bargain prices.

Bottom lines

In this article, I have outlined the core concepts and practical steps to explore and implement the value investing philosophy in your investment journey.

Because this topic is vast, I will dive deeper into specific components — such as mindset, stock selection criteria, valuation techniques, and more — in future posts.

Thank you for reading my article!

Kim,

25/12/2024