Overvalued / Undervalued Stock in Chart

I particularly like this chart diagram because it is clearly shows what the overvalued stock vs undervalued stock means.

Prices below the intrinsic value line is considered as undervalued and above is considered as overvalued. The optimum price to enter the market is during the pullback in the undervalued region. This is called "buy the dip".

However, this is just a theory. The intrinsic value calculation is very subjective. My intrinsic value for a particular stock is different than yours. In other words, what is undervalued to you might be overvalued to me and vice-versa. Therefore some people are saying "value investing" is dead. Is it?

I think as a fundamental investor, the most important thing is to invest in a company that has a good fundamental business. If the fundamental is good, intrinsic value will be increasing over time. Having to know the intrinsic value allows you to buy a particular stock price at discount level. Isn't it good? Assuming the worst case where you evaluate the intrinsic value wrongly (i.e. buy at overvalued price instead), eventually stock prices will still catch up. So in long run, you're not losing.

If we don't invest based valuation, then it is based speculation. This is a very dangerous game in my opinion. In that case, we shouldn't called this investment anymore. It should be called trading. But trading based on speculation is dangerous too, it should be based on the technical analysis (which is ultimately a probability game).

I think value investing should work. The challenge is really how to evaluate good business and calculate the intrinsic value. You can argue it is subjective but what other investing method that is not subjective?  


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