<<Economists, financial academics and business appraisers have understood for years that there is no such thing as intrinsic value. This means that value is really an empirical concept, and it is relative rather than absolute.>>
Thats a pretty bold statement. I think you would find plenty of economists, business appraisers, financial academics, and yes even investors who believe firmly that a cash producing asset has an intrinsic value - though it may be very difficult to estimate. Sure, the notion of intrinsic value is at a point in time, and could change with interest rates. (I am talking about the intrinsic value of a business or a commercial real estate asset, not a barrel of oil). What is a discounted cash flow analysis, except a calculation of intrinsic value? When you said before that the value of a stock is the value of its future cash flows discounted back, what is relative about such a valuation?
Or maybe you are referring to everything being relative to interest rates. That I can't argue with, though I'm not quite sure where you go with that. Maybe I should just say, as Buffett just about does, a business with predictable cash flows has an intrinsic value given a level of interest rates. And at the point in time you are making the investment decision, a given level of interest rates is exactly what you've got, unless you believe you can forecast interest rate movements. And anybody who can shouldn't be wasting their time on stocks, they should be trading the most leveraged zero coupon bonds they can find.
Jim |
