The Essence of Value Investing

Value investing is not a technique, it is a philosophy. It is a way of life. In fact, value investor approach what they do insider or outside the world of finance in the same way-taking certain criteria to make a decision, while demonstrating emotional discipline along the way. 

These patient thinkers tap all available resources to make a judgment call, but follow no one source. They do their own work. Value investor trust their abilities, their instincts, and their philosophy. Their investment style is an extension of their unwavering personalities.

The goal of value investor is quite simple: to buy solid businesses at exceptional price in order to achieve adequate after-tax returns over a long period. The mental model is as follows:

Good Business + Excellent Price = Adequate Return over Time

After investors do their homework on a company, an assessment of the firm’s value is done, and a reasonable price to pay for the business is determined. The key understanding here is that the most successful investors have  a framework and a way of approaching stocks. “It’s all simple,” says M. Price. “It’s not rocket science. It’s Wall Street that makes it complicated. What Max Heine and Warren Buffett (My Favorite Investor J ) did was to boil it all down to buying companies when their value was deeply discounted...” Price explains.

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The keys to investing, based on simple rules such as purchasing companies at a discount, are easy to understand. They have worked for a wide range of value investors, such as catalyst-driven investor like M.Price of Mutual Series and J.Greenblatt of Gotham Capital, or patient owners such as Warren Buffett of Berkshire Hathaway and J.Rogers of Arial Capital Management. These approaches are well documented, and surprisingly, are not complicated. Implementation, however, is not so simple. The balance between the art of investing, assessing a management team or identifying a good business, and the science of investing, figuring out what price to pay based on what the company is worth, can be difficult for some.

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Unfortunately, there seems to be many definitions of what comprises a “good” business, there are also numerous ways that investors can determine if ther are getting an excellent price for a company. Even among value investors, you will find difference in opinion on the relationship between business value and price. The objective is to make sure that your definitions of “good business” is consistent with your definition of an “excellent” price. 
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The price paid is only meaningful if it is relative to the business’ value. Fair value is destination, price and time help value investors determine if it is worthwhile for them to take that journey. The rewards must justify the risks taken. In a rational market environment, price and value share a delicate balances, as one dictates the degree of the other. They should never be separated.

Reference:

"The 5 keys to Value Investing" by J. Dennis Jean-Jacques

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of course, i recommend you to read this book (if you don't mind :))
1. The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)
2. Value Investing: From Graham to Buffett and Beyond (Wiley Finance)
3. Applied Value Investing: The Practical Application of Benjamin Graham and Warren Buffett's Valuation Principles to Acquisitions, Catastrophe Pricing and Business Execution
4. Buffett Beyond Value: Why Warren Buffett Looks to Growth and Management When Investing

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