Recently, I’ve been thinking, why do so many people trade stocks but few actually make money? The answer might lie in the four words: value investing.

I’ve found that many people understand value investing as buying low and selling high, but in reality, it’s much more than that. Buffett’s famous quote, “Be fearful when others are greedy, and greedy when others are fearful,” is based on the logic that when market sentiment fluctuates, stock prices are often overestimated or underestimated, and value investors need to identify undervalued targets during these times.

Simply put, value investing involves analyzing indicators like price-to-earnings ratio, price-to-book ratio, and dividend yield to find companies whose stock prices are below their intrinsic value, then holding them long-term. But this doesn’t mean never selling; rather, selling only when the company’s fundamentals change or the stock becomes overvalued. When Buffett bought Apple, the stock was at a historical high, but based on fundamentals, its value was still underestimated, so he dared to hold a large position.

Regarding the advantages of value investing, the most obvious is leveraging compound interest over time to grow assets alongside the company. Choosing industry leaders with established market dominance generally involves lower risk, yet the returns can be astonishing. Buffett held BYD for 14 years and earned 33 times profit—that’s a prime example. Additionally, since investments are made in leading companies with moats, reinvesting dividends can generate significant compound effects.

But honestly, value investing also has clear drawbacks. The biggest challenge is that accurately assessing a company’s value is difficult, industry changes are hard to predict, and you need enough patience to withstand stock price fluctuations, which can sometimes be drastic. That’s why, although value investing seems simple, it requires a high level of psychological resilience. Also, this approach often concentrates investments in a few stocks, leading to less diversification and higher risk concentration.

If you want to try value investing, I suggest starting with leading companies. Look for those already included in the Dow Jones Industrial Average or S&P 500—these are high-quality targets recognized by the market. Then, do thorough financial statement analysis and build your own valuation models. Buffett’s principles for stock selection are worth noting: large-cap stocks, stable profit ability, consistent ROE over five years with low debt, a good management team, and a simple, understandable business model.

The final step is to calculate a reasonable purchase price. After estimating intrinsic value, leave a margin of safety of 25% to 35% to minimize risk. While value investing appears simple, executing it requires knowledge, patience, and discipline. If you want to learn more deeply, Buffett’s mentor Graham’s “The Intelligent Investor” is a must-read classic, along with Howard Marks’ “The Most Important Thing,” which condenses decades of investment wisdom.

Ultimately, the core of value investing is finding good companies whose stock prices are below their intrinsic value and holding them patiently. It’s a rational and relatively low-risk approach, but it’s not a holy grail of investing. The key is to find a method that suits you.