It all starts from the basics. By definition, a piece of asset is something that can make income for its investor. Such as a house making rent, a company making profit. And the intrinsic value of the asset is tied to the asset's ability to make money.
But in a financial market, the asset is not priced by its intrinsic value. It is priced, however, by the supply and demand of associated securities, such as stocks, bonds, etc. Someone believes the market is efficient, so the price reflects the intrinsic value. But more often than not, prices of securities are pushed away by a lot of other factors. Investors may suddenly lose confidence to a company and the price of its stock crashes.
The task of a value investor is thus to understand the intrinsic value and jump in when market offers opportunities by wrongly pricing the securities.
But things become interesting if we dig one step further.
Who determine the rent of houses? Market! The rent of houses is determined by the demand and supply in the rental market. The same to a company. If a company sells products, its incomes is determined by the price of its products. Again it's a market that determines the price of the products. Yes the market is not a financial market. But it appears that market is the only way to discovery and realize value in human society.
In our discussion, Professor Damodaran summarized that
And my answer is
In many ways, one of the problems with financial asset markets is that they are markets for financial assets overlaid on markets for real products and services. In intrinsic value, you are estimating the value of financial assets, given the real product market below. You could conceivably carry intrinsic value one step further and ask whether the rental market is intrinsically fair...
Sure no market is absolutely fair. But we have to live with it. Probably take advantage of it.