Have you ever walked into a thrift store and stumbled upon a designer jacket, barely worn, priced like it was just a random jacket? You check the label, feel the quality, and suddenly realize—this thing is worth way more than its price tag suggests. That’s the excitement of finding value in the oveerlooked—and it’s exactly what value investing is all about.

Investing can be a tricky practice, and value investing is even trickier. Value investing is a long-term strategy where you look for quality companies whose stocks are selling for less than what they’re actually worth. It isn’t just about buying stocks and hoping for the best—it’s about understanding what you’re really paying for.

So, How Does It Work?

Value investing is built on two key concepts: intrinsic value and the margin of safety. Intrinsic value is the true, underlying worth of a company—determined by looking closely at its earnings, assets, and the overall health of its business. 

Think of it as a company’s “true” price tag.

Now imagine you’ve found that same designer jacket at 60% off. That discount is your margin of safety—your protection in case you misjudged its value. If it turns out to be worth a bit less than you thought, you’ve still made a smart purchase.

Benjamin Graham, the father of value investing, emphasized this principle. He believed that by buying stocks well below their intrinsic value, investors could protect themselves from losses and position themselves for gains when the market corrects itself.

Why Value Investing Works

Markets are usually emotional. Stocks rise and fall with investor sentiment, not always with logic. Grounded value investors take advantage of this by staying calm while others panic.

They look at things like:

• Earnings per share (EPS) i.e., the portion of a company’s profit allotted to each outstanding share of common stock. It serves as a company’s profitability metric.

• Price-to-earnings (P/E) ratio: A metric that measures how expensive or cheap a company’s stock is compared to how much money the company makes.

• Cash flow and Debt levels i.e., the real money a company receives and spends, as well as how much they owe others like banks, lending platforms, or investors.

When these numbers point to a solid company trading at a discount, value investors make their move—not because everyone else is buying, but because they know what it’s worth.

This approach helps avoid the trap of buying into bubbles or overhyped stocks. Instead, value investors wait for opportunities when fear or misinformation sends prices down unjustly.In fact, if you need some proof that value investing really works, just look at Warren Buffett. He famously purchased shares in Coca-Cola in the late 1980s when its stock wasn’t soaring—simply because he knew the brand and the company’s fundamentals were strong. Over time, as the market caught on to Coca-Cola’s enduring power, Buffett’s investment blossomed into one of his most celebrated successes.

But it’s not just the billionaires who get it. There are countless everyday investors who have embraced value investing to build wealth over time. Consider someone who, after careful research, discovers a lesser-known company with a stable earnings history and low debt. The stock may be overlooked by the majority, but by buying it at a substantial discount, that investor lays the groundwork for future growth when the market eventually re-evaluates the company.

How to Get Started with Value Investing

So, how do you jump into value investing if you’re new to the game? Let’s break it down into actionable steps that you can start using today.

1. Educate Yourself

Start with classics like The Intelligent Investor by Benjamin Graham. Don’t worry if it feels dense—there are plenty of summaries and beginner guides that break it down. Podcasts, YouTube channels, and online courses are also great learning tools.

2. Understand Financial Statements and Ratios

Get comfortable with reading balance sheets, income statements, and cash flow statements. Focus on key metrics such as earnings per share (EPS), price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and debt levels. These numbers help you determine if a company is undervalued. There are plenty of free online tutorials, videos, and courses that can make these concepts less complicated than they appear to be.

3. Use Stock Screeners

Stock screeners are invaluable tools that help you filter companies based on specific criteria like low P/E or high dividend yield. Websites such as Yahoo Finance, Morningstar, and even free brokerage tools have built-in screeners to get you started. Customize your criteria based on what you’ve learned and start building your list of potential investments.

4. Develop Your Investment Strategy

Decide whether you’re going to be an active investor, who spends time analyzing companies, or a more passive one who follows value-focused ETFs. Many value investors start small with a few individual stocks and later diversify. Stick to companies you understand—this is key to managing risk and staying confident in your investments.

5. Start with a “Margin of Safety”

Always aim to buy stocks at a significant discount to their intrinsic value to provide you a buffer in case your analysis isn’t perfect. This might require patience; sometimes the market needs a while to recognize a stock’s true worth. Remember, slow and steady wins the race.

6. Keep Emotions in Check

Markets can be unpredictable and downright scary at times. The philosophy behind value investing is to look past day-to-day fluctuations and focus on the bigger picture. Adopt a long-term mindset and try to ignore the noise. Over time, as you see how temporary dips turn into profitable opportunities, your confidence will grow.

7. Practice Dollar-Cost Averaging

If you’re nervous about investing a lump sum right away, consider dollar-cost averaging. This means investing a fixed amount of money at regular intervals, which can help smooth out market volatility. It’s a simple way to build your portfolio consistently over time without worrying about perfect timing.

8. Join Communities and Learn Continuously

Finally, consider joining online forums or local investment clubs where you can share ideas, ask questions, and learn from others. Value investing is as much about persistence and continuous learning as it is about the numbers. Interacting with a community can help you stay motivated and informed.

Final Thoughts

Value investing is not a get-rich-quick scheme; it’s more like a strategic, long-term journey. Whether you’re inspired by Warren Buffett’s legendary moves or you see everyday opportunities around you, remember that the key is patience, consistent research, and a willingness to look past the noise.

With the practical tips provided—like using stock screeners, learning to read financial statements, and embracing dollar-cost averaging—you have a roadmap to get started in value investing.

So, if you’re ready to dive in and start uncovering hidden worth in the stock market, do your homework, and remember: the market may be unpredictable, but with value investing, you’re always buying a great deal. Happy investing!

Bravewood provides Nigerian professionals with low-risk, high-return investment products, licensed by the Central Bank of Nigeria.