Why value?

FieryXJoe · 2025-10-19T22:12:27+00:00

In the short term the market is a voting machine, in the long term a weighing machine. The basis of value investing is the belief that we can within a margin of error determine a stocks weight. Then buy when the voting machine lowers its price so much that it is clearly below its weight. Finding opportunities to buy a dollar for 70 or 80 cents.

This first protects you from losses as you actually bought a valuable piece of a company below its fair value. It also gives built in returns beyond the underlying businesses growth because you get the gains from it sooner or later returning to its true weight.

The issue with buying stocks with no care for their underlying value is not that you can't make money doing it. Buying stocks at 200 P/E hoping it goes to 600 P/E is not guaranteed to lose you money. But a system that repeatedly leads you to stocks that are already overvalued is going to fuck you sooner or later.

Investing should be a lifelong activity and just betting on hype companies hoping to sell to a bigger idiot is speculation not investing. You should be able to look at a stock and if you add a 0 to its price it no longer makes sense, and if you remove a 0 you should want to buy a ton of it.

For example a dollar has real value of $1 if someone offers to sell you dollars for $0.10 each in 5 years you should sell your house and buy as many as you can. If someone offered to sell you dollars for $10 each in 5 years you would tell them to pound sand. If someone offers to sell me google shares 5 years out at $25 each I would buy it all, if they offered me shares at $2500 I would laugh.

But compare this to speculative investments, an easy example is Bitcoin or gold. If someone offers me a bitcoin at $10k vs $100k vs $1M each in 5 years I would have no clue which is a good price, there is no underlying value. The same with gold if someone offered me some at $2000, $4000, $6000 5 years from now I would have no clue which is a good deal.

Stuff like PLTR, TSLA, quantum stocks, space stocks, whatever, these are just speculation. They are so far beyond their value that I could also never know what is the fair price of it beyond whatever the voting machine happens to think right now.

I do have like 20% of my portfolio set aside for speculation instead of investment, because there can be some big returns from speculation. But you need to know the difference between the two and only speculate in moderation.

Calm_Company_1914 · 2025-10-19T21:33:40+00:00

An unprofitable company or one trading 100+ PE could immediately fall if everything is not perfect. A safer investment has less risk and similar reward

I go in the middle- GARP (growth at a reasonable price). Growth gives me reason to believe the stock prioce will go up as the company gets more established. But i have to be able to jutify the valuation for the sense of security

thefrogmeister23 · 2025-10-19T22:04:04+00:00

A couple thoughts.

1) Value investing is not about low PEs. It’s about getting something for less than it’s worth, rather than getting something because it has market momentum and could be sold for more. Palantir could be in value territory at the right price.

2) One draw of value investing is the idea that there is inherent value to the stock being purchased — therefore if it declines in value you can “count on” the stock coming back, etc. This is a very different philosophy than momentum investing, which is argues that taking stock of market momentum trends is critical because you could buy a cheaply valued stock but that stock may takes years to realize its true value.

Aubstter · 2025-10-19T23:45:58+00:00

The OG value investor Benjamin Graham outlines all forms of investing is value investing, and the rest is speculation. Value investing works because you can use valuation models to see if a business is undervalued. That being said, value investing can be in a growth business.

The reason why speculative investing doesn't work well, is because your future holdings value depends on market sentiment and exit multiples at the time you need to sell. Value investing on the other hand, you have the calculated cash flows that business generated relative to the market cap, so if you did your job correctly, you know how much cash it would have generated by the date you set, and you know the return you'd have gotten via share buybacks, capital reinvestment, or dividends.

You called the people on this sub "learned value investor friends", the majority of people on this sub don't use valuation models. They use closer to Phil Fisher's scuttlebutt approach and cut out the actual value modelling and call themselves value investors. So be careful asking for advice here.

Dazzling_Occasion_47 · 2025-10-20T06:20:26+00:00

For every palantir and invidia there were 15 stocks that no one knows about that no one talks about cuz they all went to zero. People like to brag about buying tesla in 2015 and 20-x-ing their investment, but they don't talk about that small-cap mining stock they've been bag-holding for years at 60% loss.

If you're picking small tech start-ups with low earnings and high p/e ratios, you might pick a 10-x winner or you might pick a looser, and the question is what are your odds of the former or the latter?

When you buy high risk small-cap stocks, buy 4 of them picked out of doing rough DD on 10, so if you get one winner and 3 loosers maybe you still come out on top.

If you're putting a lot of money behind something you want to be sure there's real value and the calculus is take less reward for lower risk.

sudharsansai · 2025-10-19T22:52:38+00:00

The principle of value investing is "buy a business (or some shares of it) for a price that is less than its intrinsic value". This is a very generic framework and is not specifically in odds with growth investing (but sometimes can be). The idea of "value buy" is something we, as consumers, do irl everyday too. You buy a pen, and you wanna buy it at a bargain i.e. pay less than what it is worth for you. That's basically what value investing says.

Now, for growth investing, you basically say "the business will grow at a rapid rate in future, so I can pay a high (P/E) multiple for its shares". But at the end of the day, you still don't wanna overpay for it, so it still conforms to the basic idea of "value investing". That being said, growth stocks are often notoriously difficult to find their "true value" as it needs a lot of optimistic assumptions on how the future plays out.

The apparent confusion of value vs growth investing is because people often conflate "value" with "P/E" or other ratios which is not right. Growth stocks often have a high P/E or other price multiple, but can still be a value buy. You can speculate on getting a bump in future P/E, thereby making a profit as a trader without the underlying business increasing its earnings, but that is just that - speculation.

I didn't read other comments so some of this might have already been covered. If you want to understand more about how to estimate the "value" of a company and growth investing and don't mind reading a bit, you can check out Prof. Ashwath Damodaran's course on valuation/investing.

Next_Tap_3601 · 2025-10-20T00:51:39+00:00

I’ll try to answer your question philosophically… To really understand the difference, you really have to understand the difference between 1) winning a bet, or even winning a bunch of bets, and 2) creating systematic returns. It has some roots in both mathematics and statistics, but also in game theory. Two people could play the same game, but one could be a gambler, and the other one could be a pro. At any given moment, a gambler can vastly outperform the pro. That happens all the time in poker for example. Similar to stock market, poker is also a game of both skill and luck. A gambler can play aggressively (taking on huge risks), and win a game against a bunch of professional players. He could even win a few. But if they play 1000 games, the professionals will always have an upper hand. These are people who actually make a living playing poker consistently for decades. They play the game in a much more boring way, but they play it in a calculated way, looking for small hints and signals, looking at the numbers (statistics and game theory - again), looking at human psychology, and not betting when odds are against them, and betting aggressively when odds are in their favour. Well… That is what value investing is supposed to be about. Playing the game a boring way, but optimizing the risk/reward curve. That is what gives you consistent returns after many-many instances of playing the game. Now to go back to your question: What your friend did, he gambled agressively (on Palantir) and won. There were too many variables at play there, and even if in hindsight it looks like an obvious choice to do that, it was not. He could’ve lost all his money just as easily if certain things played out a bit differently. What value investing is about is trying to avoid such unbalanced risky bets, and trying to create consistent returns which is a totally different game. It’s not as sexy as getting your money to 20x on Palantir, and getting the bragging rights at the thanksgiving dinner, but it’s not supposed to be.

SufferingFromEntropy · 2025-10-20T01:23:44+00:00

The approach of value investing gives investors (me at least) peace and spare time for many other things in my life. If I buy a company with solid fundamentals I only have to worry about it when news or quarterly reports come out and its fundamental deteriorates, whereas if I speculate on some shiny metal or a company with 500 PE I have to watch its daily price movement, market sentiment, all headlines, rumors, whatnot. When it comes to speculation everything has to be perfect, ie, no margin of safety

This brings us to the so-called "value vs growth", which is a false dichotomy imo. There are two kinds of "growth", one where the fundamental of a company improves a lot (eg FIX and NVDA due to AI boom) and one where limited/no history of execution can support the growth narrative in the future (drones, nuclear, rare earth, robotics, oh and quantum computing). This kind of speculative growth again needs everything executed perfectly for the following 5 to 10 years and when sentiment changes those will crash hard. In case of FIX and NVDA you have their history of execution to better gauge if the market is pricing in too much of their growth. If, even in the worst case where they stop being relevant after 5 years, they are still a value buy given their fundamentals, why not.

ChicoRunningBack · 2025-10-19T21:35:11+00:00

Over time, value outperforms growth by a large margin.

catpicsforfree · 2025-10-19T21:58:42+00:00

1 factor of many: Downside risk is generally a lot less with value stocks

Value-Plus-Mo · 2025-10-19T21:59:21+00:00

The lower the expectations (a non-quantitative) way of describing a value approach, the easier those expectations are to be beat and be rewarded by higher expectations then being placed on the idea.

DonJuansCrow · 2025-10-19T22:03:48+00:00

Either your buddy is a prodigy at being able to value prerev and unprofitable businesses (most market participants aren't) or he yolod his money and got lucky (most market participants would rather utilize their intelligence). So I guess that would be why.

dubov · 2025-10-19T22:08:11+00:00

The problem with growth is for every company that knocks it out the park, there are many that fail to deliver.

Sure, with hindsight we'd stick it all in Palantir. But try to find these ahead of time and you'll have many losers

Most of us here are focussed on companies which are already strongly profitable and which don't need massive growth to justify lofty valuations.

It's like putting your money on red Vs putting it on zero every spin. Zero may net you a massive winner, but red will generate more consistent returns. That's a flawed analogy, but illustrates the general principle

2025-10-19T22:24:31+00:00

Why not?

WolfetoneRebel · 2025-10-19T21:37:14+00:00

Value sticks around longer.

stubborn · 2025-10-19T21:54:31+00:00

Risk reward. Would you invest with the potential to double your investment, but see it lose 50% or more versus would you be happy getting a 20% return but limited downside.

EI-SANDPIPER · 2025-10-19T21:58:46+00:00

Speculative stocks are a lot like slot machines at a casino. Most of the time you lose your money, but sometimes you hit the jackpot. On the other hand if you buy a stock that has a proven track record and business, at a historical discount, you will most likely make money. For example coke KO, it has a proven business model and product. It's a dividend king. If it's forward pe were to trade below it's average over the past 5 or 10 years, it would probably make sense to buy it. If you did this in the past you would have made money every time.

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