So yesterday i posted the part 1 if you haven't checked please give it a go!

Continuing...

But what is the intrinsic value?

According to Warren Buffett, the intrinsic value is determined by the future cash flows brought to present value that can be withdrawn from the company during its existence. In other words, the growth in free cash flow increases the company's intrinsic value.

And how are the fundamentals of the company/crypto related to its value?

Fundamentals such as product / service quality, production capacity, potential growth, management, competitive advantages, brand strength, balance sheet strength, financial results, human resources, patents, among several other elements , are the characteristics that ultimately reflect a company's ability to generate cash. Therefore, the better the fundamentals of a business or crypto, the greater its capacity to generate cash, which results in an increase in intrinsic value.

In the most elementary form, the value investor seeks to buy assets at bargain prices, so that the risk is reduced through the safety margin. Although the idea is simple, its application is not easy.

Let us look at two points that clarify the difficulty of finding bargains:

1st, you must have a good estimate of the value at hand. After all, if you pay dearly, you will need a surprising appreciation, a bull market or an even less demanding buyer to make up for the price paid.

2nd point is that, if you are correct, you should stick to the estimated value. For example, suppose that the value calculated for the shares of a company is $100, but that it is quoted at $60 on the stock exchange. So you buy at that price, after all the stock is still discounted. However, in the following days, the trading session shows us prices of $55, then $50 and, finally, $40.

If you don't maintain the right temperament, you can defraud yourself with thoughts like “maybe I'm wrong; and the market, right "or" fell so much that I will sell before it reaches $ 0 ". Loss aversion is human nature. Therefore, it is common to be concerned about prices falling as soon as we buy. However, we should be willing to buy more shares in the event of falling prices, as well as buying more clothes, more food or any other consumer item on sale.

If the fundamentals do not change, rationally, it is better to invest more (or maintain the position) than to do the opposite, that is, to rescue at a loss! In the stock market, being right is not the same as proving right right away.

As in the previous example: although you are certain about the intrinsic value of $100 (and bought it at $60), it is almost always inevitable that the stock will fall in the short term before approaching its real value in the long term .

In short, value investors are patient enough to find the real bargains and invest with a safety margin. After purchase, you just have to stick to the estimated intrinsic value and ignore short-term volatility. Thus, the asset will move up to its intrinsic value, in case of success.

Finally, in The Most Important Thing, Howard Marks states: “For the investment to be successful, an accurate estimate of the intrinsic value is the indispensable starting point. Without it, any hope for consistent success as an investor is nothing more: a hope ”.