In Chinese crypto investment chat groups, "value investing" often exists as an inside joke—a term used for self-deprecation when investors face losses. A trapped investor might sigh, "Guess it's time for value investing now," sparking laughter or commiseration. Alternatively, value investing resembles a fleeting trend, sometimes revered as gospel and other times dismissed as worthless—declared "dead" before miraculously reviving.
A quick search for "value investing" reveals countless similar chat logs.
Occasionally, we encounter self-proclaimed "value investors." When asked to define it, their top responses include "long-term holding" and "patience." However, these descriptions miss the core philosophy of value investing.
What Is Value Investing?
Value investing isn’t overly complex, yet it’s more nuanced than most assume.
The concept traces back to Benjamin Graham, the American securities investment pioneer, and his seminal work Security Analysis, which emphasizes analyzing stocks based on intrinsic value. Later, Philip Fisher, Charlie Munger, Seth Klarman, Howard Marks, and others enriched the theory. Warren Buffett, with his 50+ years of stellar investment performance, popularized value investing globally.
So, what is value investing? One interpretation: Buying $1 worth of assets for $0.40—purchasing below intrinsic value. While accurate, this describes the outcome, not the method. The real challenge lies in identifying such opportunities.
Section 1: The Four Pillars of Value Investing
Value investing rests on four foundational concepts:
- Buying Stocks = Buying Companies
Stocks represent ownership in businesses that generate profits and cash flow. A company’s intrinsic value is the sum of its future discounted cash flows.
Discounted cash flow (DCF) adjusts future values to present terms (e.g., $10 in 10 years ≈ $5 today). - Circle of Competence
Invest only in assets you thoroughly understand, with insights surpassing 90% of market participants. Overestimating one’s competence is a common pitfall. - Margin of Safety
Analogous to building a bridge rated for 20 tons but only allowing 15-ton vehicles, this principle buffers against errors and market volatility. Buy at prices significantly below intrinsic value—like Buffett’s "$0.40 for $1" rule. - Mr. Market
Graham’s allegory depicts the market as an emotional, erratic partner offering daily prices. Investors should heed Mr. Market’s quotes, not his moods—leveraging his volatility while avoiding emotional traps.
Definition: Value investing means purchasing assets within your circle of competence, below their intrinsic value, with a robust margin of safety.
Challenges in Practice:
- Circle of Competence: Requires honest self-assessment and continuous (but cautious) expansion.
- Intrinsic Valuation: Demands tools to measure hidden competitive advantages (e.g., network effects, brand power).
- Margin of Safety: Fewer opportunities arise with stricter margins, risking "correct but missed" scenarios.
- Mr. Market: His whims test discipline daily.
Section 2: Does Value Investing Apply to Crypto?
Warren Buffett famously called Bitcoin "rat poison," and neither he nor Charlie Munger favors crypto. Yet, value investing principles can work here—with adaptations:
Buying Tokens = Buying Projects
Invest in crypto projects that:- Capture Economic Value: Tokens should accrue most of the project’s value (e.g., avoid wallets whose tokens don’t reflect user activity).
- Solve Major Problems: Target enduring sectors (e.g., DeFi lending/trading over niche tools like Tornado Cash).
- Have Strong Teams: Early leads fade without execution (e.g., Burgerswap vs. later BSC competitors).
- Circle of Competence
Avoid areas where knowledge gaps exist. If you can’t outpace 90% of investors in understanding a project, it’s outside your circle. - Margin of Safety
Crypto valuations are fuzzy, but relative metrics help spot "obvious bargains"—like recognizing a "fat" project without knowing its exact weight. - Mr. Market
Ignore noise; focus on price vs. value. The market reflects collective sentiment, not truth.
Four Decision Filters:
- Is this a top-tier project in its sector?
- Do I truly understand it?
- Is the price below intrinsic value + margin of safety?
- Am I using or being used by the market?
Section 3: When to Sell?
Sell if:
- The Thesis Breaks: Deteriorating competition, shallow moats, or team failures.
- Better Opportunities Arise: Compare assets relentlessly—even cash (a ~2% yield "bond") is an investment.
FAQs
Q: Can technical analysis replace value investing in crypto?
A: While possible, it’s a high-skill arena with reflexive risks. Ask: Is this your edge?
Q: How do I estimate a crypto project’s intrinsic value?
A: Use relative valuation (comparing metrics like P/S ratios) when DCF models falter.
Q: Why does Buffett dislike crypto?
A: He favors cash-generating assets. Yet, younger Buffett might invest in profitable crypto ventures.
👉 Explore crypto investments with OKX
Disclaimer:
- Adapted from Mint Ventures. Original author: Xu Xiaopeng. For concerns, contact Gate Learn.
- Not financial advice. Opinions expressed are solely the author’s.
- Translated by Gate Learn. Unauthorized reproduction prohibited.