Recently studying stock investing, I found that many people are discussing the concept of value investing. To be honest, this methodology does have some real substance.

The idea of value investing isn't new; it was systematically summarized as early as the 1930s. Later, Buffett promoted this theory and dedicated his life to this strategy, achieving an average annual return of over 20%. Looking at this number today, it's still quite impressive.

In simple terms, value investing is about finding stocks that are undervalued by the market. More complexly, you analyze indicators like price-to-book ratio and price-to-earnings ratio to identify stocks whose prices are seriously undervalued, then hold them long-term, selling when the market overvalues them. This isn't just about buying low and selling high; it's about buying when the market price is below intrinsic value and selling when it's above.

I find Buffett's famous quote quite interesting—"Be fearful when others are greedy, and greedy when others are fearful." This is the creed of value investors. Often, stock prices don't reflect their true value; when investor sentiment is high or extremely fearful, prices become severely distorted.

Interestingly, when Buffett held a large position in Apple, although Apple's stock was at a historical high, he judged its value was still undervalued. Later, this decision proved to be correct. This shows that investing isn't just about past prices; you need to consider fundamentals, technicals, and other factors to find truly undervalued targets.

Value investing has its pros and cons. The advantage is that if you pick correctly, profits can be substantial. Through compound interest over time, assets grow along with the company. Buffett held BYD for 14 years and earned 33 times the initial investment—that's the power of compounding. Also, since these are industry leaders with moats and competitiveness, the relative risk is lower.

The downside is also clear. First, accurately assessing a company's value is very difficult; financial reports are only a reference, and industry changes are unpredictable. Second, it requires strong patience, as stock prices fluctuate and sometimes sharply, which can scare many investors out during volatility. Lastly, diversification is limited; you might concentrate heavily on a promising industry, which increases risk concentration.

If you want to use value investing to pick stocks, here are some ideas. First, choose companies that are already industry leaders—big players tend to stay big, and it's safer to add to a strong position than to catch falling knives. Second, select from component stocks included in major indices, like the 30 Dow Jones Industrial Average companies or the 500 S&P 500 firms—these are market-recognized representative companies. Third, learn to analyze financial reports and build your own analysis models.

Buffett has several classic stock-picking criteria I think are worth referencing. He focuses on large-cap stocks with at least $50 million in annual after-tax profit. He requires a consistent ROE above 15% for at least five years, with low debt. The company should have stable profitability and an excellent management team. Lastly, the business should be simple enough, avoiding overly tech-heavy companies.

The final step is to estimate a reasonable intrinsic value. You can use discounted cash flow (DCF) analysis; after calculating the intrinsic value, leave a safety margin of 25%-35% to minimize risk.

Honestly, value investing requires considerable professional knowledge and psychological resilience. If you want to learn systematically, there are many classic books worth reading. "The Most Important Thing" by Howard Marks is a work Buffett has read twice. "The Intelligent Investor" by Benjamin Graham, the father of value investing, is the method Buffett used early in his career. Also, "Berkshire Hathaway's Investment Principles" compiles his early investment insights and is quite instructive.

In summary, value investing is a rational, relatively low-risk investment approach, but it’s not万能. The key is to find an investment style that suits you, so you can stand firm in the stock market.