Value investor Mohnish Pabrai wrote The Dhando Investor: The Low-Risk Value Method to High Returns (Wiley, 2007). It’s an excellent book that captures the essence of value investing:
The lower the price you pay relative to the probable intrinsic value of the business, the higher your returns will be if you’re right and the lower your losses will be if you’re wrong.
If you have a good investment process as a value investor, and you’re focused on cheap and good companies with low or no debt, then you are likely to be right on roughly 2/3 of your investments. Because losses are minimized on the other 1/3 – due to the low price paid – the overall portfolio is likely to do well over time.
Mohnish sums up the Dhando approach as:
Heads, I win; tails, I don’t lose much!