Opportunities arise when market prices deviate from intrinsic value

All investments represent a set of future cash flows, which can be valued with reasonable accuracy. The progression of this intrinsic value is fairly stable through time. Investment market prices, however, vary considerably over time - most often due to self-reinforcing cycles of enthusiasm or negativity. These mispricing cycles often result from an excessive focus on near-term data and news flow.

The patient, skilled investor will benefit from buying investments at prices well below intrinsic value and holding them while they deliver strong cash returns and until they can be sold at above intrinsic value. Once sold, such overvalued investments should be avoided with discipline for as long as the market price is above the intrinsic value.
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