Buffett takes this value investing approach to another level.
Many value investors do not support the efficient market hypothesis (EMH) . This theory suggests that stocks always trade at their fair value, which makes it harder for investors to either buy stocks that are undervalued or sell them at inflated prices.
Investors like Buffett trust that the market will eventually favor quality stocks that were undervalued for a certain time.
This is the kicker. Finding companies that meet the other five criteria is one thing, but determining whether they are undervalued is the most difficult part of value investing. And it's Buffett's most important skill.
To check this, an investor must determine a company's intrinsic value by analyzing a number of business fundamentals including earnings, revenues, and assets.
And a company's intrinsic value is usually higher (and more complicated) than its liquidation value, which is what a company would be worth if it were broken up and sold today.