It's funny how often a prominent person's legacy is remembered with a single speech, or even a single phrase. Four score and seven years. I have a dream. Ask not what your country can do for you. One small step for man. Tear down this wall. You know what I mean.

Without comparing the contributions of those men, I wondered whether one speech could define the career of the world's greatest investor, Warren Buffett, concisely describing what's led him to just destroy the market.

Turns out, it can. While Buffett had been dominating for decades, his talent wasn't truly apparent to the world until he gave a 1984 speech at Columbia University titled, "The Superinvestors of Graham-and-Doddsville."

The lengthy speech can be found in its entirety here (opens PDF file), but I'll give you the Cliffs Notes version.

Dumb luck, pure skill, and flipping coins 
Buffett begins by imagining a nationwide coin-flipping contest. Everyone in the country participates and calls the flip of a coin. Call correctly and move on to the next round, guess wrong and you're out.

After 20 days, about 215 lucky flippers will have correctly called 20 consecutive flips. They gloat in success, yet the nature of coin-flipping tells us they're just lucky. It's a game of random chance.

But what if all 215 flippers lived in the same town? What if they all hailed from the same school? The same fraternity? Then we'd get excited. The laws of probability suggest 215 winners after 20 days. But those same laws tell us that if all 215 belonged to an associated group, that almost certainly wouldn't be the product of random chance. These 215 flippers clearly would know something we don't.

Meet nine "lucky" flippers 
The real flippers in Buffett speech are nine "superinvestors" -- himself included. All nine crushed the market averages over multiyear periods by between 8% and 22% per year.

In a world with millions of investors, such returns can occur by sheer luck -- just like the 215 coin-flippers appeared at first glance. But all nine superinvestors hailed from the investment school of Benjamin Graham and David Dodd -- Columbia professors now known as the fathers of value investing. That meant something big. It meant that their success wasn't the product of luck. It almost had to be attributable to the only common link they shared: the investing philosophy learned from Graham and Dodd. The "intellectual origin," as Buffett put it.

What set Graham and Dodd's philosophy apart? That's where the title of this article comes in. Explaining it was simply the best advice Buffett ever gave.

Here it is 
Buffett states the superinvestors' core values in just a few sentences:

The common intellectual theme of the investors from Graham-and-Doddsville is this: they search for discrepancies between the value of a business and the price of small pieces of that business in the market. Essentially, they exploit those discrepancies without the efficient market theorist's concern as to whether the stocks are bought on Monday or Thursday, or whether it is January or July, etc ...

It's very important to understand that this group has assumed far less risk than average ... While they differ greatly in style, these investors are, mentally, always buying the business, not buying the stock.

It's that simple 
Most investors aren't superinvestors. To them, there's little distinction between price and value. A cratering stock means risk, while a soaring stock somehow indicates strength and safety -- all with little regard to other, more deeply rooted factors. This is akin to assuming that all attractive people make great spouses.

But a more philosophical view shows how crazy this is. Risk appears when market value equals or exceeds the long-term value of a company's discounted cash flows -- its intrinsic value. It then diminishes in proportion to how far market price drops below intrinsic value. Really simple. The relationship between price and risk is often the opposite of what it's comfortable to assume.

Here's an example: Was Apple (Nasdaq: AAPL) riskier in late 2007, when optimism was on fire and shares surged to $200, or in early 2009, after shares crashed and bottomed out at less than half their former highs? The answer is easy. Apple was quite risky in 2007, when the market assumed it was a surefire bet, and steadily approaching riskless territory in early 2009 when volatility and predictions of the death of the American consumer were commonplace. This thinking applies to today, too. Right now, Apple is an absolutely cherished company, no doubt due to the success and popularity of its iPad and iPhones, and because its stock has made people rich over the past year. But that's pushed shares up to 18 times next year's earnings -- not outrageously expensive by any means, but certainly not the kind of circumstance that's likely to come close to recreating last year's returns.

Same goes for companies such as Caterpillar (NYSE: CAT) and American Express (Nasdaq: AXP), which were both nearly left for dead before surging skyward. Investing risk was lowest when the performance and volatility of their shares looked bleakest. That was when the gap between price and intrinsic value was widest. That's when you want to invest. Today? I'd stay away from both companies. Caterpillar's priced for a housing rebound that very well may not materialize as planned; AmEx still has to deal with the long slog of entrenched consumer unemployment, and will see slower growth due to new consumer protection laws. Both companies hardly look cheap after their recent runs.

Looking ahead 
Our Motley Fool Inside Value service looks for out-of-favor companies at attractive prices. Right now, the team has identified Microsoft (Nasdaq: MSFT) and Wal-Mart (NYSE: WMT) as companies whose market is price is far below their long-term intrinsic value, and I couldn't agree more. Microsoft gets hated on because it isn't Apple (Bill Gates just isn't as cool as Steve Jobs). But this is still a near-monopoly company trading at under 14 times next year's earnings. And Wal-Mart might just be one of the last megacap stocks that's still really cheap: The company trades at 12.5 times next year's earnings and still has the wind on its back from recession-shocked consumers looking to save a few bucks.

The results of Inside Value's selections speak for themselves. Since inception, the team's picks have outperformed market averages by seven percentage points, making them superinvestors in their own right. Even better -- they're headed to the annual Berkshire Hathaway conference to see what else they can learn from Buffett. If you want to listen in, just click here to sign up for their dispatches from the front.

This article was originally published Jan. 25. It has been updated.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article.

The Fool has a disclosure policy. AmEx, Microsoft, and Wal-Mart Stores are Motley Fool Inside Value choices. Apple is a Motley Fool Stock Advisor recommendation. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool has a disclosure policy.