“A stock is undervalued” sometimes means nothing more than: “I spent a long time building a careful model and, in the process, convinced myself that I was right. I checked all the numbers, factored in growth, discounted the cash flows, calculated fair value – surely I didn’t spend all that time for nothing! Now all that remains is to wait until the market finally agrees with me.”

Been there. For example, I held Alibaba stock for almost two years, roughly from 2021 to 2023. The price kept falling, yet according to analysts, the stock was still “undervalued.” Say, it was $100 with a $140 target, then gradually turned $50 with a $70 target. In both cases, +40% upside. Except I had already lost 50%. And even if the new target ($70) were eventually reached, I would still be down 30% from my purchase price. It helps to remember: “fair value” is just our opinion (or the average opinion of a small group of analysts), while the market price reflects the decisions of a vast number of participants, a good many of whom do not build any models at all.