I'm glad to be back, thank you.
You ask an interesting question that was best answered by Allen Benn at techstocks.com, so I'll quote him:
Although the financial market rarely prices a stock precisely in accordance with intrinsic value, if you buy the stock at the intrinsic value or less, you are guaranteed to receive a return at least equal to the capitalization (discount) rate over the long term. This guarantee is irrespective of the multiples the current market believes is appropriate for the stock, due to manias, doctors' beliefs about trailing PE ratios, money manager shenanigans, the Fed decisions about short term interest rates, short sellers, or anything else.
This guarantee strikes at the notion that the financial market somehow is the arbiter of stock values. It means that the market is subject to absolute valuations, not some ephemeral, floating, relative valuations reflective of how benevolent the market wants to be to us today and hopefully tomorrow. Like us, the market is only guessing about value, and often is best ignored. |
