Relative valuation can be done with less information and more quickly than intrinsic valuation and is more likely to reflect the market mood of the moment. Not surprisingly, most valuations that you see are relative.

A stock may look cheap relative to comparable companies today, but that assessment can shift dramatically over the next few months.

Assets with high and stable cash flows should be worth more than assets with low and volatile cash flows. You should pay more for a property that has long-term renters paying a high rent than for a more speculative property with not only lower rental income, but more variable vacancy rates from period to period.

If you accept the Markowitz proposition that the only risk you care about is the risk that you cannot diversify away, how do you measure the exposure of a company to this market-wide risk?

The key lesson from this distribution should be that using the average as a comparison measure can be dangerous with any multiple. It makes far more sense to focus on the median.

Ultimately, there are dozens of valuation models but only two valuation approaches: intrinsic and relative.

Success in investing comes not from being right but from being wrong less often than everyone else.

The discount rate can be viewed as a composite of the expected real return (reflecting consumption preferences), expected inflation (to capture the purchasing power of the cash flow), and a premium for uncertainty associated with the cash flow.

The intrinsic value of an asset is determined by the cash flows you expect that asset to generate over its life and how uncertain you feel about these cash flows.