Value investing is the discipline of buying shares at a significant discount from their current underlying values and holding them until more of their value is realised. The element of a bargain is the key to the process.

We worry top-down, but we invest bottom-up

If an asset has cash flow or the likelihood of cash flow in the near term and is not purely dependment on what a future buyer might pay, then it's an investment. If an asset's value is totally dependent on the amount a future buyer might pay, then its purchase is speculation.

To a value investor, investments come in three varieties: undervalued at one price, fairly valued at another price, and overvalued at still some higher price. The goal is to buy the first, avoid the second, and sell the third.

Ratings agencies are highly conflicted, unimaginative dupes. They are blissfully unaware of adverse selection and moral hazard. Investors should never trust them.

The near absence of bargains works as a reverse indicator for us. When we find there is little worth buying, there is probably much worth selling.

Rather, risk is a perception in each investor's mind that results from analysis of the probability and amount of potential loss from an investment. If an exploratory oil well proves to be a dry hole, it is called risky. If a bond defaults or a stock plunges in price, they are called risky. But if the well is a gusher, the bond matures on schedule, and the stock rallies strongly, can we say they weren't risky when the investment after it is concluded than was known when it was made.