In September, the market continued to advance amid high volatility. Against the backdrop of rising uncertainty and somewhat weakened risk appetite, some market capital gradually shifted its attention toward the value style. Wind data shows that the Value ETF E Fund (159263) received net capital inflows of approximately 1.8 billion yuan in September, leading other value-style ETFs. In fact, buying a value-style ETF is equivalent to practicing value investing in a simple way. The phrase "value investing" is familiar to many, but what exactly does it mean? Does it simply mean buying cheap stocks? We can understand value investing through an analogy. If a product is marked down by 50%, is it necessarily worth buying? Not necessarily—perhaps its quality has deteriorated and the seller is eager to clear inventory. The same applies to stocks: a big price drop or a seemingly low valuation does not equal investment value, and vice versa. Over the past century, from Graham seeking "cigar butt" stocks to Buffett advocating "buying quality companies at reasonable prices," the expression of value investing has continuously evolved, but the core has never changed: investing is not simply comparing whether prices are high or low, but judging the relationship between price and intrinsic value.

Graham: Seeking a Sufficiently Large 'Discount' on a Dollar of Assets

Modern value investing in its proper sense usually begins with Benjamin Graham. The 1929 U.S. stock market crash and the subsequent Great Depression made him witness firsthand how prosperity narratives can collapse in a short time, and he himself suffered major losses in the process. Afterward, he began to reduce his reliance on market forecasts and narratives in investing, and turned to more evidence-based facts: what assets a company owns, how much debt it carries, and how much value remains if it ceases operations. Under this approach, Graham looked for stocks whose market prices were clearly below the value of the company's assets. This type of investment was later vividly called "picking up cigar butts": like picking up a discarded cigar stub, it may not be dignified, but it still has considerable value left. Graham proposed two very important concepts. The first is "Mr. Market." The market comes every day with a quote, sometimes overly euphoric, sometimes irrationally pessimistic. The investor's task is not to be swayed by the market, but to take advantage of its emotional swings—buying when it is relatively pessimistic and selling when it is relatively optimistic. Stock prices are quotes given by the market, not the final answer to a company's value. The second is the "margin of safety." Suppose an asset's intrinsic value is judged to be one yuan; if you buy at ninety-nine cents, a slight misjudgment could lead to a loss; if you can buy at sixty or seventy cents, then even if your judgment is not precise, there is room for error. The gap between price and intrinsic value is precisely the buffer investors use to cope with the unknown and with misjudgment. Therefore, in Graham's framework, "cheap" was never about a small share price number, nor about having fallen enough, but about the purchase price being sufficiently attractive relative to the predictable asset value.

Buffett: From 'Buying Cheap' to 'Buying Worth It'

As Graham's student, Buffett strictly followed the "cigar butt" investment approach in his early years. However, this strategy had obvious era-specific characteristics and limitations. For example, during the Great Depression, a large number of companies' stocks were sold at prices far below their book value or even net current asset value, but outside the Great Depression, an excellent company rarely appears at a "bargain-bin" price. In normal times, the reason a company becomes temporarily very cheap is often business decline, poor governance, or insufficient competitiveness. More troublesome still, even if the discount at purchase is large, if the business continues to deteriorate, the seemingly ample margin of safety may be continuously eroded. Philip Fisher's research on high-quality growth companies, as well as Charlie Munger's emphasis on business models and long-term compounding, had a profound influence on Buffett, and he gradually shifted his focus from "how cheap it is" to "how good the company is." Competitive moats, brands, pricing power, management capability, return on capital, and the ability to continuously generate cash flow began to become important bases for judging a company's intrinsic value. This began to push value investing gradually from "what a company owns now" toward "what a company can create in the future." A company's intrinsic value comes not only from assets that can be counted today, but also from the returns it can create for owners in the future. For a company with a good business model and reliable cash-generation capability, and which can reinvest at high efficiency over the long term, its value will grow over time; as long as the price does not fully price in such growth, buying it is still practicing value investing. In other words, Graham placed more emphasis on protecting himself with a sufficiently low price, while Buffett further emphasized letting the value growth of excellent companies help him, and the boundaries of value investing were thereby extended.

Value Investing: Bringing 'Cheap' and 'Good' Together

Although the investment philosophies of Graham and Buffett differ, both show that one cannot equate "buying low" with "value." Focusing only on cheapness makes it easy to overlook whether the asset's quality itself is acceptable, and there may be a risk of continuous depreciation; focusing only on excellence also makes it easy to forget that every asset has a reasonable price. No matter how good a company is, if the purchase price fully prices in overly optimistic expectations, it may take a long time to digest the valuation. Therefore, "cheap" must have a reference point, and that reference point is the company's intrinsic value. But intrinsic value is never a precise number; it is a prudent estimate of a company's current and future operating results. Just as the future cannot be fully predicted, investors need to acknowledge valuation error and use a margin of safety to leave room for mistakes. From Graham's search for asset discounts to Buffett's emphasis on the long-term compounding of excellent companies, what has changed is the method of finding value; what has not changed is the relationship between price and value. Therefore, value investing is not a fixed stock-picking label, but a way of thinking. Returning to the question at the beginning: what exactly is value investing? It is not simply "buying low," nor simply "buying good companies," but buying good assets at relatively low prices. So-called "cheap" is a discount of price relative to intrinsic value; so-called "good" is the ability of an asset to continuously create value and continuously appreciate. True value investing requires bringing the two together in the same investment. If value investing is about bringing "cheap" and "good" together, then the Guozheng Value 100 Index is precisely an indexed expression of this philosophy: in sample selection, it first excludes samples with low turnover, small market capitalization, and negative net profit, then excludes samples with low average ROE or excessive volatility, and finally scores comprehensively across three dimensions—low price-to-earnings ratio, high dividend yield, and high free cash flow ratio—selecting 100 stocks from A-shares, with quarterly rebalancing. Simply put, the Guozheng Value 100 Index uses the price-to-earnings ratio to reflect whether a company is "cheap," while dividend yield and free cash flow ratio measure whether a company is "good" enough. For investors who wish to observe and participate in A-share value-style investing, they may pay attention to the Guozheng Value 100 Index and the Value ETF E Fund (159263, feeder funds A/C: 025497/025498) that tracks the index.