On Monday of this week, stock market legend Charlie Munger would have turned 100 years old. In honor of this occasion, I presented my 12 favorite quotes from the once brilliant partner of Warren Buffett in yesterday’s „Closing Bell.“

Today, we will take a closer look at the value strategy. This is the investment strategy that made Charlie Munger, Warren Buffett, and others some of the most successful investors in the world.

The history of the value strategy dates back to the 1930s. American investors Benjamin Graham and David L. Dodd were teaching at Columbia University at the time and are considered the pioneers of this strategy.

Basics of Value Investing Benjamin Graham’s book „The Intelligent Investor“ is the classic on the topic of value investing. Graham is considered the architect and most important representative of this investment philosophy. „The Intelligent Investor“ was first published in 1949 and is also available in German under the title „Intelligent Investing.“

Another classic of value investing, co-authored by Graham and David L. Dodd, is the book „Security Analysis,“ which was first published in 1934. This book goes even deeper than „The Intelligent Investor“ and focuses primarily on the balance sheets of companies.

This work is available in German under the title „The Secret of Security Analysis.“ The value strategy only gained widespread recognition several decades later.

One of the main drivers of its popularity is Warren Buffett, who was a student and then employee of Benjamin Graham and is considered the most successful stock market investor of all time through his investment company Berkshire Hathaway.

Value investors differentiate between price and value Value investors rely solely on the fundamental analysis of a company’s financial data and do not chase short-term stock market trends. Value investors try to find stocks whose prices are below the fair value of the stock.

When value investors believe that stock prices are below the fair value of the stock, they mean the following: The current price is below the value of the company’s future cash flows.

In simple terms, this means that the expected future cash flows of the company justify a higher stock price. The distinction between the price and the value of a stock is a crucial differentiating factor from almost all other investment strategies on the stock market.

This is because followers of other investment strategies generally assume that the price of a stock is identical to the value of the corresponding stock. Warren Buffett says: „Price is what you pay. Value is what you get.“ This means: The price is what you pay and the value is what you get.

When value investors buy a stock The current stock price can therefore be above or below the fair value. Value investors buy a stock when the current price is significantly below the calculated value. The motto is roughly simplified: Buy a stock that is worth one dollar, but only pay 50 cents for it! This is (apparently) how the successful value strategy works. It is also worth taking a look at this strategy, which I also follow in my stock market services.