So one way to create an attractive risk/reward situation is to limit downside risk severely by investing in situations that have a large margin of safety. The upside, while still difficult to quantify, will usually take care of itself. In other words, look down, not up, when making your initial investment decision. If you don’t lose money, most of the remaining alternatives are good ones.

The secret to investing is to figure out the value of something - and then pay a lot less.

The way we make money as a group is that we don't pay a lot for anything, and most of the stocks we buy have low expectations.

If I plug my estimates into the Magic Formula, and it comes out cheap, that's good.

Value investing doesn't always work. The market doesn't always agree with you. Over time, value is roughly the way the market prices stocks, but over the short term, which sometimes can be as long as two or three years, there are periods when it doesn't work. And that is a very good thing. The fact that our value approach doesn't work over periods of time is precisely the reason why it continues to work over the long term.

I still believe that for good business analysts a concentrated portfolio is a good strategy combined with a long term horizon. Once again, the secret to success in following the formula strategy is patience, a quality in short supply for both professionals and individual investors alike. I think investors should have a large portion of their assets in equities over time.

There’s a virtuous cycle when people have to defend challenges to their ideas. Any gaps in thinking or analysis become clear pretty quickly when smart people ask good, logical questions. You can’t be a good value investor without being an independent thinker – you’re seeing valuations that the market is not appreciating. But it’s critical that you understand why the market isn’t seeing the value you do. The back and forth that goes on in the investment process helps you get at that.