Everyone has a plan until they get punched in the face. These famous words by Mike Tyson are not just for the boxing arena, it’s relevant in all walks of life. The theory behind value investing, while not the easiest topic, is not particularly difficult either. The great divide between mediocre and exceptional investors is often not found in their understanding of valuation metrics or financial statements but in their ability to consistently make rational decisions. This ability is deeply rooted in specific psychological traits—discipline, patience, rationality, and a certain level of contrarian thinking—that are essential for long-term success in investing.

Value investing is not a field with clear-cut answers; it’s filled with open-ended questions. Markets evolve, companies change, and the economy fluctuates in unpredictable ways. The best investors are perpetual learners and deep thinkers. They seek to continuously expand their knowledge, not only of financial statements, business operations, and economic indicators but also of human psychology and the behaviour of markets. In this field, there is no single path to success. Each investor must carve out their own strategy, rooted in their own understanding and experience. Continuous learning allows for adaptation, as nothing is static. The learners and thinkers, those who embrace curiosity and intellectual humility, tend to perform better in this ever-changing landscape. They understand that markets are complex systems, and they approach each investment with an open mind, constantly refining their approach. Moreover, investing involves a considerable amount of independent thinking. You need the intellectual curiosity to develop your own understanding of a company’s fundamentals and the patience to apply this knowledge over time. Successful investors avoid herd mentality, which often leads to overvaluation or undervaluation of assets, and instead rely on their deep understanding of the companies and industries in which they invest.

In value investing, discipline is paramount. While many investors understand the theory of identifying undervalued assets, consistently executing this approach is far more challenging. Successful value investing is not just about spotting undervalued assets; it requires the discipline to avoid irrational decisions, especially during periods of market volatility when others may be moving in the opposite direction of what is rational. Figures like Benjamin Graham and Warren Buffett championed the idea that markets can be irrational, and success lies in buying quality assets at a discount, but only disciplined investors can maintain this strategy when markets are either plummeting or soaring. True discipline is tested when emotions run high—when panic leads some to sell at the bottom, or exuberance drives others to buy at the top. During such times, discipline bridges the gap between theory and practice, ensuring long-term strategies remain intact despite short-term market fluctuations.

Key traits like patience, rationality, and self-awareness are essential for long-term success. Value investing often involves playing the long game, waiting years for payoffs or opportunities, and without patience, investors may sell too early or miss out on full potential gains. Rationality is crucial to staying the course when psychological impulses—such as the natural desire to avoid pain and seek immediate gratification—pull in the opposite direction. In downturns, rationality helps override emotional instincts to sell, while in bull markets, it prevents investors from getting swept up in euphoria and overpaying. At the same time, managing one’s cognitive biases is critical, as even experienced investors can fall victim to mental shortcuts that cloud judgment. By maintaining intellectual honesty and staying aware of these biases, disciplined investors ensure their long-term strategy remains rooted in rational analysis, allowing them to avoid the irrational temptations that can derail success.

Value investing also requires a healthy dose of contrarianism. When the majority of investors are moving in one direction, it can be difficult to go against the tide. However, some of the best investment opportunities are found precisely when everyone else is selling or ignoring a particular sector. To be a successful value investor, you must be willing to stand apart from the crowd and trust your own analysis, even when the market disagrees. To do the same as everyone else is the ask for the same results as everyone else over the long run, to skilfully and consistently obtain above-average results you must be doing something different from the majority. However, contrarianism must be intelligent as being contrarian and wrong is the path to the worst of all performance.

Buffett and Graham famously talk about “Mr. Market,” the metaphorical figure who offers stock prices to you every day. Mr. Market is highly emotional, often offering stocks at prices that bear no relation to their intrinsic value. Sometimes, he’s overly optimistic and prices stocks too high. Other times, he’s overly pessimistic and offers them too low. The job of the value investor is to assess whether the price offered by Mr. Market is reasonable in relation to the underlying value of the business. The investor must not panic and sell out of fear when the price offered is too low, and the investor must have the confidence to take action when Mr. Market offers an irrationally low price, but also the restraint to avoid buying when prices are inflated. Confidence is important, but it must be tempered with realism. Investors who are overly confident may end up holding onto losing positions for too long or buying into bubbles, whereas those who lack confidence may miss out on valuable opportunities.

In the end, the theory behind value investing is relatively straightforward, but successful execution is far more challenging. It requires a deep understanding of not only the markets and individual companies but also your own psychology. The traits that differentiate great investors from the rest—discipline, patience, rationality, and independent thinking—are not learned overnight. They are cultivated through experience, reflection, and a willingness to continuously improve. While investing may begin with a plan, it’s the ability to stay rational and grounded in the face of psychological factors that often differentiate those who execute and those who don’t.