Lilguy

Intrinsic Value Investing: Recognizing Potentially Mispriced Stocks

I am tired of commentators of all types--pundits, money managers, investment advisors, whatever--talking about the "intrinsic" value of a stock, bond, or commodity (usually gold). I've commented on this elsewhere in this blog already.

There is not such thing as intrinsic--or inherent--value of a stock, bond, or commodity. The market puts a value on these. Based on one's analysis, one may believe that the potential value of the investment is above, below, or on par with that value. As reflected above, AFG uses a model to make that assessment. It's model gives a buy, hold, or sell signal on stocks based on a series of assumptions, calculations, and comparisons. Nothing in it is intrinsic.

As a strategic value investor, I do try to look for potential investments that appear undervalued, primarily by examining fundamentals, but also trends/momentum, especially in the underlying economy. Nonetheless, when I'm done, I don't presume to have found an intrinsic value, just a value relative to the market of that kind of investment. That valuation doesn't cut across investment types, eg--stocks vs. bonds, so I have to dig further to decide whether I should be in one type or another investment.

Nothing has intrinsic value. It's all relative. Those suggesting they understand the intrinsic value of an investment are selling something that does not exist.