What is the most critical factor in investing? Many people get it wrong from the start.

My view is arranged as follows: first is overcoming your own psychology, second is stock selection ability, and third is valuation. It may sound counterintuitive, but this is the reality.

Why is psychology ranked first? Because most failed investors fail here. Rationality, patience, not greed, not fear—easy to say, but hard to do. Watching others double their investments while you haven't moved yet, that itch in your mind. Conversely, when the market drops, you want to cut your losses immediately. These psychological fluctuations can destroy even the best investment plan.

Next is stock selection. You need the ability to identify truly reliable companies, which requires research skills and experience accumulation.

Finally is valuation. But this doesn't mean valuation isn't important; it just means its role isn't as decisive. What is valuation? Simply put, after choosing a good company, you need to ensure you haven't bought at a high price. How to judge if this price is reasonable? You need to do a preliminary valuation of the company.

Regarding valuation methods, the mainstream approach in the market—including top investors—is basically using a logic called "discounted future cash flow." But this thing isn't a rigid formula because it involves too much subjective judgment.

What we need is "fuzzy precision." Sounds contradictory? Actually, it's very reasonable. Because many things you simply cannot fully understand. For example, when evaluating a person, whether you give them 50 points or 90 points, can that score fully accurately represent that person? Obviously not. But that doesn't mean scoring is meaningless.

The same logic applies to company valuation. If you estimate this company's worth at 5 million, does it really worth 5 million? Not necessarily. Two companies that both score 80 points might perform very differently. So, never treat valuation as an exact science; it is fundamentally a form of judgment.

That said—no matter how imprecise valuation is, it's better than not estimating at all. If you don't even know how much this company is worth, how can you compare it to the market price? How to judge whether you're getting a bargain or paying too much? So ultimately, valuation is an unavoidable step.

How to estimate it? Metrics like P/E ratio, ROE (Return on Equity) can be referenced. But remember one thing: these are just tools for reference, not laws.