Don't Forget Why Value Investing Works

I don't know about you, but I'm convinced value investing stands alone as the most effective way for any investor to predictably build wealth over the long haul.

To be sure, many of the world's most famous investors have made their names through unwavering faith in value investing, including Benjamin Graham, David Dodd, Seth Klarman, Irving Kahn, Whitney Tilson, Joel Greenblatt, and of course, Berkshire Hathaway's (NYSE: BRK-B  ) (NYSE: BRK-A  ) Warren Buffett.

With a roster like that, who'd be crazy enough to argue against their methods?

The catch
Sometimes, however, it can be incredibly difficult to stick to your guns while pundits all around repeatedly pronounce the death of value investing -- especially given the ever-increasing focus on -- and influence of -- short-term mind-sets and high-frequency trading.

Its during those times I like to reflect on the thoughts of noted value investing masters like Markel  (NYSE: MKL  )  president and CIO, Tom Gayner.

The silver lining
For example, when asked last year if he's ever tempted to stray from his strict value investing methods, Gayner replied:

There are certainly times when it goes out of favor, and that's always been the case... and that's why it works. If it were always easy, that's what everyone would do. Part of being a value investor is being willing to lean against the wind and to do things that are unpopular.

And therein lies the rub: How can you possibly expect to beat the market if you're only willing to do what everyone else is doing?

But my mom says I'm cool...
If you really want to keep your focus on the longer-term and practice value investing, you need to be willing to embrace that much of what you're doing will probably feel immensely unpopular at the time.

Do your friends brag about how much money they made over the last three days on short-term trades? Remember that money can be lost just as quickly -- and you can bet you won't hear such pomp and circumstance when that happens.

Do all your buddies talk about speculative growth stocks or, even worse, those "promising" penny stocks sure to make them millionaires overnight? Remember Warren Buffett's words when he said, "People who want to get rich quickly will not get rich at all."

In the end, remember that value investing is all about finding proven companies with stocks that trade hands for less than they're worth, then holding onto them until the market realizes its mistake.

Not sure where to begin? Here's a start:

Do your homework
First, emotionally prepare yourself for the roller coaster that is value investing. Better yet, read The Intelligent Investor by Benjamin Graham -- the text Buffett rightly asserts is "by far the best book on investing ever written." Pay particular attention to chapters 8 and 20, which concern how to handle market fluctuations and how to give yourself adequate margins of safety when choosing investments, respectively.

Next, read Security Analysis by Graham and David Dodd, which, unsurprisingly, covers exactly what its title suggests.

Then, use what you learned to study the underlying companies for the stocks in which you're interested.

Be patient... and brave!
Finally, remember to always maintain a long-term outlook and remain confident in your choices.

As Graham wrote in second-to-last paragraph of The Intelligent Investor

Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it -- even though others may hesitate or differ." (You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.) Similarly, in the world of securities, courage becomes the supreme virtue after adequate knowledge and a tested judgment are at hand.

More expert advice from The Motley Fool
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