Chapter 3. Value Investing—It's Like Buying Christmas Cards in January

[W]e had learned from Ben Graham that the key to successful investing was the purchase of shares in good businesses when the market prices were at a large discount from underlying business values.[42]

Warren Buffett

If you love bargains, you will love value investing. Value investing is regarded as the cornerstone of Buffett's investing strategy. Value investing is similar to buying something while it's on sale. An everyday example of value investing is buying Christmas cards in January at about half the price of the same cards a month earlier, in December. If you buy Christmas cards in January and use them the following Christmas, you will have implicitly earned a return of about 100 percent on your investment. If you tend to come up with such ideas, implement them, and compute your potential returns, you are a natural value investor. For value investing in the stock market, you buy when prices are low relative to fundamentals (e.g., earnings and book value), and then wait for prices to move up.

Most stocks do not sell for bargain prices, just as most items in the local mall do not sell for bargain prices. Good deals are not available every day. An investor must be patient and wait for such opportunities to arrive. You need patience to wait for a truly outstanding value opportunity, and you need even more patience after you purchase a stock. It often takes time for price to reflect value. In the case of Christmas ...

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