A lot of discussions have been devoted to finding the fair value of an investment. The goal of all investors is to find undervalued investment and sell when it reaches fair value. Of course, this is the most difficult part of investing. So, what is the fair value? The fair value is a point where the price of an investment reflects its profitability.

The fair value is relative and depends on other factors beyond the investors’ control. Here, we discuss the calculation of fair value, within the confines of our control. In short, the calculation of the fair value of an investment depends on the rate of expected return and risk to achieve that return. Demand higher risk higher reward. It ‘very simple.

So, what constitutes a low risk business investment? We can only compare. The first thing that comes out of my mind is a certificate of deposit (CDs). You are guaranteed some return (interest rate), if you can keep for a certain pre-determined period of time. You would never lose the primary to the end of the period of time.