The open secret of investing is to "buy low, sell high", buy assets at a low price at the right time, and then sell them at a high price at the right time to get the difference.

The reasoning is simple, but what is high and what is low, is there an actionable standard of judgment? This is the key to testing the wisdom and ability of investors.

In Max's The Most Important Thing About Investing, Chapter 3 talks about how to find this standard: accurately assessing the intrinsic value of an asset.

1. Why is it important to have an accurate estimate of intrinsic value?

The reason why the most useful strategy is to assess the intrinsic value of an asset is that if you can accurately locate the value of an asset, you can know whether the market price is high or low in comparison, and you can determine the point at which to buy and sell.

From there, it is possible to buy at a price lower than the intrinsic value of the asset, and sell at a higher price, thus realizing the true low buy high sell.

Therefore, an accurate assessment of the value of an asset is the first step in investing, which is the core of value investing.

2. How to make an accurate estimate of intrinsic value?

In fact, every investor assesses the value of assets all the time.

As if you want to buy a used car, you have to objectively evaluate the true value of the target car in order to call out the price below the value and buy more value.

In fact, most people who invest are not evaluating at all, based on hearsay, or even their own unreliable intuitive judgment.

It's like running around with a torch in a powder keg, full of risks that they're blind to, and less likely to make an accurate assessment of asset value.

Marks points out that there are two types of common value assessments: based on the characteristics of the company, i.e., "fundamentals" and based on the behavior of the asset's own price.

The former is based on judging the intrinsic value of an asset and buying or selling when the price deviates from the intrinsic value, whereas the latter bases its decision-making entirely on predicting the asset's price behavior.

The former includes value and growth investing, while the latter includes technical and volume trading, with Marks emphasizing the first two approaches to asset valuation.

3. Why is valuation based on the behavior of a security's own price unreliable?

The central reason why investment decisions based on technical analysis and stock price behavior are unreliable is the random walk hypothesis.

The random walk hypothesis states that asset prices are independent and uncorrelated in any given market.

The probability of whether an asset price goes up or down in the next second is 50%, just like flipping a coin, which is a random process.

The random walk hypothesis suggests that the fact that assets have risen continuously over the past period of time doesn't tell you what tomorrow's prices will be.

So, based on technical analysis and price action analysis, there is no realistic guidance for investing.

4. Why is value-based investing more reliable compared to growth-based?

The goal of a value investor is to find the current intrinsic value of an asset and buy when the price is below the current value.

A growth investor's goal is to find assets that will increase in value quickly in the future and buy them.

Value investing emphasizes tangible factors and focuses on the current value of an asset; Growth investing emphasizes the future potential of an asset, not its current attributes.

So the real choice seems to be not between value and growth, but between current value and future value.

Growth investing bets on future performance that may or may not materialize, while value investing is largely based on analyzing a company's current value.

The future is uncertain, so Marks believes that value investing is more reliable than growth investing.

5. What is the quote that sticks out?

Making a decision based on value investing does not guarantee ultimate success, but also long-term holding. The process will occur when the price is lower than their own purchase price to remain firm, as an investment proverb says.

6. Summarize

Personal experience of "fixed investment to change fate" and this book, compared to the value of investment and trend of investment to say more clear and comprehensive.

For example, about trend investment is actually similar to growth investment, one thing is to choose the investment target to be able to long-term sustained growth, and in the two big cycles will inevitably show the value of the original.

Another example is that trend investing based on short-term prices is meaningless, but trend investing based on long-term perspectives and macro-observations is the most valuable, and this is where the difference lies.