Value investing involves searching for investments where the perceived risk is greater than the real or actual investment risk.
All investments have a certain amount of real risk that must be assumed when owning an asset. It is the risk perceptions of the marketplace (buyers and sellers) that determine the price of an asset.
The price of an asset may be greater or less than the intrinsic or real value of an asset. The difference between the real risk and perceived risk determines whether the price of the investment is higher or lower than the real value.
Mr. Market lets both his enthusiasm and gloom affect the price of investments. It is the goal of the value investor to take advantage of mispriced assets.