So why value investing is a great investment philosophy?
Not because Warren Buffett became rich thanks to value investing. Its because the premise behind value investing is this: Us, humans, are not so smart as we might think. Hence, we must come up with some tools and philosophy to protect us from our ignorance (and emotions) when we invest money.
In security analysis, the prime stress is laid upon protection against untoward events. We obtain this protection by insisting upon margins of safety, or values well in excess of the price paid. the underlying idea is that even if the security turns out to be less attractive than it appeared, the commitment might still prove a satisfactory one.
Its a philosophy that shares the same thoughts of the great philosopher Karl R. Popper — “Our knowledge can only be finite while our ignorance must necessarily be infinite.”
I may also add that value investing offers the chance for investors to increase their odds to find company with a “black swan*” future success.
* A black Swan event does not necessarily leads to a negative consequence.
That is why value investing is great — not perfect — just great.