Buy only at a large enough discount to estimated value that being wrong still need not be ruinous.
What it asks you to do
Estimate what a business is worth independently of its share price.
Buy only at a meaningful discount to that estimate.
Treat the discount as protection against your own estimation error, not as the expected profit.
Where it struggles
The entire method rests on a value estimate that is itself uncertain. A large discount to a wrong number offers no protection at all.
Source: The Intelligent Investor
Piotroski F-Score
Joseph D. Piotroski · 2000
Intermediate
Scores financial health from 0 to 9 using nine accounting signals, to separate sound cheap companies from failing ones.
What it asks you to do
Checks profitability signals: positive net income, positive operating cash flow, improving return on assets, and cash flow exceeding net income.
Checks leverage and liquidity: falling long-term debt, rising current ratio, no new share issuance.
Checks efficiency: improving gross margin and asset turnover.
Sums the nine pass/fail tests into a single score.
Where it struggles
Built on reported accounting data, so it inherits every weakness of that data — restatements, aggressive recognition, and sector conventions that make cross-sector comparison misleading.
Source: Value Investing: The Use of Historical Financial Statement Information
Magic Formula
Joel Greenblatt · 2005
Beginner
Ranks companies on just two measures — earnings yield and return on capital — and buys the best combined ranks.
What it asks you to do
Rank the universe by earnings yield (cheapness).
Rank it again by return on capital (quality).
Add the two ranks and buy from the top of the combined list.
Hold for a fixed period, then rebalance.
Where it struggles
Deliberately ignores debt structure, cyclicality and accounting quality. It also requires sitting through long stretches of underperformance, which is where most people abandon it.
Source: The Little Book That Beats the Market
Fama–French Three-Factor Model
Eugene F. Fama and Kenneth R. French · 1992
Advanced
Explains stock returns using three factors — market, company size and value — rather than market exposure alone.
What it asks you to do
Extends the single-factor model with a size factor and a value factor.
Provides a way to check whether a strategy is genuinely skilful or merely loaded on known factors.
Underpins most modern factor-based index products.
Where it struggles
A model for explaining returns after the fact, not a trading system. Factor premia have long periods of underperformance, and the original findings are debated.
Source: The Cross-Section of Expected Stock Returns
Articles
No Value Investing articles published yet — the frameworks above are the reference for now.