Master a checklist-driven strategy for achieving stock market alpha
Contributing Editor's Note: This post, originally published in November 2023, is a top Quality Value Investing article in reader engagement since QVI launched on Substack. I decided to remove the paywall and publicly share it as a sample article for potential new subscribers interested in or curious about quality-driven value investing. The post was updated and revised on April 3, 2025.
As widely reported, many in the financial services industry and media consider value investing dead in the water. I believe value investing is alive and well and forever, but what do I know?
Well, I know that many of the premier investors in modern history are value-oriented. William Browne, Warren Buffett, Mario Gabelli, Benjamin Graham, Joel Greenblatt, Seth Klarman, Peter Lynch, Howard Marks, Bill Miller, Charlie Munger, Michael Price, John W. Rogers Jr., Charles Royce, Walter Schloss, Sir John Templeton, Geraldine Weiss, and Martin Whitman are legends.
These value investor household names remind us that the practice of owning the common shares of quality companies with wide margins of safety at the time of purchase is as enduring as rock and roll, electricity, and that the Earth is indeed round.
Anything with promise, including value investing, has its lapses in popularity or delivery methods despite ever evolving and persevering. Nevertheless, there is no equal to quality-driven value investing for individuals striving to build and maintain an enduring portfolio that will finance the indispensable milestones in the lives of loved ones.
On the Death of Value Investing
Value investing is never dead. It’s less popular than short-term growth stories. However, value prevails as long as there are financial markets or farmers’ markets.
Although it is essential to underscore that I remain a die-hard value investor, the investment paradigm was out of favor on Wall Street during the momentum growth post-Great Recession bull market, making it more challenging to attract readers if the word value appeared in the title.
In hindsight, I could, would, and should have bought Amazon AMZN -1.19%↓ shares at about $30 (split-adjusted) when its paid subscription service, Prime, began to take off in 2016. Or Netflix NFLX -1.09%↓ in 2013 for $50 when the company started streaming original content. And Alphabet GOOGL -3.39%↓ in 2004, when its IPO was available to retail investors for about $4.25 a share, split-adjusted.
Toward the end of the epic bull, it became vogue for long-time celebrity-named value investors to bite the bullet and buy the more speculative, non-dividend-paying growth stocks. In other words, this time was different until it wasn’t.
For better or worse, at the time, I passed on each of those trends and other momentum growers as speculation. Instead, I focused on researching and purchasing stocks of boring, out-of-favor, albeit excellent companies that have outperformed the S&P 500 since I added the representative shares to our family portfolio.
Wall Street struggles to generate Hamptons beach house-size bonuses on buy-and-hold value investing. Instead, it promotes speculative investment trading paradigms, producing fees that build those summer cottages.
Whose beach or lake house are we building — ours, our financial advisor's, or our investment newsletter writer’s?
Perhaps there are diverging interpretations of traditional value investing or quality compounders purchased at attractive prices.
Trading beaten-down value stocks is the equivalent of buying cigar butts or shares of lower-quality companies on speculation and then selling based on an expected or hoped-for corporate, industry, or macro-driven event. In contrast, quality-driven value investors continue to add fresh ideas to their portfolios that offer compelling prospects for compounding capital gains and dividends, protected by adequate safety margins to preserve principal during the inevitable market declines.
Remember, future returns are uncorrelated with past performance. Nonetheless, quality-driven value investing aims to outperform the benchmark over extended periods—seven to ten years or more—knowing monthly, quarterly, and annual performances are at the whim of the market’s voting machine cast from irrational investor behavior or the occasional surprise event. It is better to seek the benefits of Ben Graham’s longer-tail weighing machine of compounding returns and margins of safety.
Avoid Trend Following and Other Investing Misdemeanors
Before the COVID-19 coronavirus pandemic, the inflationary bear market, and the trade war-induced market correction, the epic bull market, propelled by non-dividend-paying growth, high-yield forward dividends, cryptocurrency, and other speculative investment strategies, seemed unstoppable.
Some market luminaries questioned the enduring legacy of value investing or declared its imminent death. A bull market for the ages precipitated the argument as growth stocks, momentum trading, trend following, and forward high-yield dividend equities, among other speculative portfolio strategies, outperformed the more risk-averse value approach.
Perhaps value investing is too long-term and low-cost for a nearsighted, overly sophisticated financial services industry bent on collecting mega-bonuses from the exorbitant fees paid by its legions of clients and followers. Nevertheless, trying to predict trends, catalysts, momentum, and macro events with any consistency borders on substituting lottery tickets for a retirement plan. Despite the noise, value investing triumphs because value doesmatter in everything we buy, hold, or sell.
Investments in high-quality, predominantly dividend-paying companies, purchased at value prices, endure well beyond the scrap heap, where perennial bull markets for the ages dump the portfolios of investors chasing fast money in the euphoria of “This time is different.” History argues otherwise.
Value investing is neither dead nor dying and survives as a superior strategy. The post-Great Recession secular bull market was camouflaged, with the die-hard value-driven practitioners waiting to pounce on the falling stock prices of enduring enterprises.
We are comfortable acknowledging that quality at value prevails in every market cycle.
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The Downside of Value in Bull Markets
The inherent risk to the quality-driven value investing model is the non-value investors permeating market cycles.
Chasing the dragon named market bubbles has been a cornerstone of investing for Wall Street professionals and Main Street do-it-yourselfers since stock trading began. Human behavior dictates that it’s off to the races once we outsmart the market and predict this swing or that trend or go long or short just right on a company or sector. Convinced of figuring this out, we begin the unrestrained hamster wheel of predicting and trading.
As validation, there are always reputable assists from market influencers to our preoccupation with market trends. Lately, assistance from the Federal Reserve has helped keep interest rates low until they didn’t. Before that, the hand-off came from government deregulation of the housing market, which allowed widespread homeownership, fueling opportunistic investment banks to package mortgages into marketable securities, and creating more risky mortgage dollars to lend to marginal home buyers.
Before the highly rated mortgage-backed securities, despite no documentation of borrowers’ income, there was assistance from the capital markets of free-flowing investment into dot-com ideas that were just ideas. Before that, junk bonds contributed to financing impossible mergers and acquisitions. Yes, the greatest threat to an investor is the market itself. However, the market is also a friend to count on for delivering individual company or market-wide value opportunities. Dedicated value investors stay patient and self-disciplined without pretending to know when or how those opportunities will emerge.
Prepare for the imminent next downturn with dry powder in the form of FDIC-insured—or equivalent—cash to ride the ensuing upside in the stocks of quality companies. These stocks are suddenly value-priced due to the extreme preference for discomfort among the herd of market-timing investors. Rest assured: When market crashes occur, speculators with blind faith in trend following, momentum trading, forward high-yield dividend investing, and the next trading fad yet to be determined will run for the hills.
As value investors, downturns in the market and targeted quality enterprises are our workdays. The ensuing upturns are our paydays.
Financial Markets and Farmers’ Markets
The proverbial day of reckoning is inevitable, although unpredictable.
Rational, disciplined, and patient value investors never need to stress over failed short positions, diminishing fund assets under management from departing performance chasers, or useless self-doubt fueled by the 20/20 hindsight of missing out on the fast growers, high yielders, and cryptocurrencies when trending skyward. A reminder that several failed Enrons, Blockbusters, WorldComs, and Lehmann Brothers exist for every speculative winner, such as Amazon.
Investors can be comforted knowing that quality-at-value will prevail as long as there are financial or farmers’ markets.
Why the Trend is Rarely Our Friend
By definition, trend followers pass on the underfollowed player in an underappreciated industry.
Nonetheless, following the trend or practicing momentum investing is fleeting, favoring nearsighted, speculative trades that come and go with market cycles and fads. Common sense suggests that a slew of short-term momentum trades is required to make the same potential profits from just a few long-term investments in the publicly traded shares of quality companies purchased at reasonable prices. The winning long-term holdings were bought at value prices because the traders sold them off during a negative trend.
Buy slices of businesses because each appears in customer demand, yet trades at value prices because of temporary mispricing by the market. Well-managed, concentrated stock portfolios have an adequate allocation of defensive, noncyclical holdings for the eleventh hour of any bull market.
Skeptical, nearsighted investors cite political grandstanding, trade wars, commodity pricing dilemmas, livestock supply issues, occasional product recalls, and other inconsequential grievances as justification for short-sighted momentum trades and trend following. And worse, offer death knell sentiments for companies domiciled outside the US. Being receptive to the compelling counters to an investment thesis, when the value investor hears, “Stay away from car companies,” the auto industry becomes a sudden and curious interest.
It is incredible how the investment world, on the whole, believes the present market, whether bull, bear, or range-bound, is somehow different, ignoring that business and market cycles come and go at random. Having the newest and latest investment fad to rally around is the differentiator in each market cycle. It reminds us of being in high school all over again.
When determining the difference between the market price and the underlying value, give preference to the perception of intrinsic value instead of estimations or calculations. Be skeptical of specific price targets, earnings projections, and other attempts at precision from the sophisticated financial models of sell-side and buy-side analysts.
When you read, “XYZ is trading at a 40 percent discount to intrinsic value,” remember how Wall Street justifies its mega bonuses, driven by enormous fees, with predictions unnecessary in the scheme of things. If these market pundits were often right rather than wrong, we’d become wealthy by following them. Before taking the prediction at face value, conduct independent due diligence.
For example, in mid-2011, Microsoft’s MSFT -1.92%↓ common shares traded in the low-to-mid-twenties. Did I calculate through discounted free cash flow analysis and other complex formulas that Microsoft compounds as an 18+ bagger fourteen years later?
No, although my perception was that the market grossly undervalued the stock despite its Windows software legacy, strong fundamentals, hoards of cash, and other positive areas of the operation.
At the time, the activist investment community was taking issue with the chief executive officer (CEO), and I figured he would resign, retire, or get replaced at some point. Thus, I invested a dividend-adjusted $20 a share, thinking it would go up more than down over the long term. My analysis was driven more by a real-time cognitive analysis than an assumption-driven specific future price target. As of the market close on April 3, 2025, MSFT was trading at $373 per share, almost 19 times the cost basis, adjusted for dividends paid in cash. The holding gained 144,564 basis points more than the S&P 500 during the same period.
Over-analysis or setting price targets gets individual investors—and perhaps professionals—in trouble from timing trades. The analysis paralysis of publicly traded companies and the underlying stocks leads to extreme shorting or put options trades, as there is bad news in every security.
I am a reformed investor from lessons learned. The slow and steady investor knows that stable companies appreciate in the long run, as active traders moving in and out of positions in reaction to good and bad news get punished in the short run. Follow populist stock trends to our potential peril, or we can invest in great companies over a long-term horizon and benefit from compounding with a margin of safety.
Rational, disciplined, and patient investors chase quality and value, knowing that each prevails across market cycles.
Remember to read the necessary disclaimers and disclosures at the bottom of this post.
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David J. Waldron is the contributing editor of Quality Value Investing andthe author of the international-selling book Build Wealth withCommon Stocks: Market-Beating Strategies for the Individual Investor, as well as his upcoming fifth book, Quality Value Investing: How to Pick the Winning Stocks of Enduring Enterprises.
He is a private investor and a former expert advisor to hedge funds, mutual funds, private equity firms, and investment banks.
David’s mission is to inspire his readers to achieve their financial goals and dreams. His work has been featured in Substack Finance, Substack Business, Seeking Alpha, MSN Money, TalkMarkets, ValueWalk, Yahoo Finance, QAV—Australia’s #1 Value Investing Podcast, Money Life with Chuck Jaffe, LifeBlood with George Grombacher, The Acquirer’s Multiple, Capital Employed, and on platforms like Amazon, Barnes & Noble, Apple Books, The BookLife Prize, and Publisher’s Weekly.
David enjoyed a 25-year career as an executive in postsecondary education services. He earned a Bachelor of Science in Business Studies as a Garden State Scholar at Stockton University and completed The Practice of Management Program at Brown University. Learn more at davidjwaldron.substack.com.
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Disclosure: I/we have long, beneficial positions through the direct ownership of GOOGL and MSFT common shares in our family portfolio. I authored this post and expressed my opinions without compensation, except from Substack subscriptions. I have no business relationships with any of the companies mentioned.
Additional Disclosure: David J. Waldron’s Quality Value Investing newsletter posts are for informational purposes only. Data accuracy is not guaranteed. Narratives and analytics are impersonal and not tailored to individual needs or portfolio construction beyond the QVI Stock Picks, presented solely for educational purposes. David is a private investor and author, not an investment adviser. Readers should conduct independent research or due diligence and consider consulting a fee-only financial planner, a licensed discount broker, a flat-fee registered adviser, a certified public accountant, or a specialized attorney before making investment, tax, or estate planning decisions.
Disclaimer: Although Quality Value Investing takes a skeptical view of the financial services industry, commonly referred to in the media as Wall Street—a euphemism for professional or institutional investing globally—it does not imply nor express specific issues or negative references regarding any actual organizations or individuals working within the financial services sector. Any perceived connection or offense to actual firms or individuals is coincidental and unintentional. In its general critique of the universal Wall Street business model, QVI avoids unproven conspiracy theories and offers a platform for commentary, critique, education, and parody. In this context, facts stand apart from any alternative perspectives. Therefore, the subjective thoughts shared by the author throughout the post are his opinions and should not be construed as factual.
In my opinion value investing always becomes out of favour once markets irrationally rise. People are justifying their own "thesis" which is no longer based on any fundamentals. They just forget that no tree grows to the sky. Great post!
Microsoft was a very shrewd investment at the time.
In my opinion value investing always becomes out of favour once markets irrationally rise. People are justifying their own "thesis" which is no longer based on any fundamentals. They just forget that no tree grows to the sky. Great post!