In a great book and a must-read for investors,"What is Value Investing?", the author, Lawrence A. Cunningham, writes about the many traditions of value investing. "Value investing is partly a state of mind. It is characterized by habitually relating the price of a stock to the value of the underlying business. Basic principles of fundamental analysis are the tools. They arise from three traditions.Benjamin Graham's margin of safety principle is the first one. It requires assurance that a stock's price is substantially below its estimated value. The test requires conducting a full business analysis. To begin, value investors use simple filters that narrow the range of candidates to those that an investor understands and can evaluate (commonly known as a circle of competence).
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