I'm having confusion in determination of decision through intrinsic and market value
In the last tutorial you mention Fundamental value if greater then market price then we sell and if Market price is higher then fundamental value then we tend to buy but here you saying just opposite if market value is lower then Intrinsic then buy and sell when it is higher then what is to consider??
If the intrinsic value is greater than the market value then we should buy the asset or security because then the market value will converge with the intrinsic value with time which would give us profit. Let's consider an example- The MV of company A is $150 and the intrinsic value is $220. Now won't you want to buy that security? You would, right? With time the MV will converge with the IV and you will earn a profit of $70. On the other hand, if the MV is higher than the IV, we should sell the securities because when the market will correct itself, we would suffer losses. Again taking the example of Company A. MV= $150 but this time the IV = $100. Now if you have the share of company A and the market corrects itself then you would suffer a loss of $40. So, it's better to sell the stock at $150. In this way you would be prevented from suffering losses.
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