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Non-Tech : Berkshire Hathaway Class B -- Ignore unavailable to you. Want to Upgrade?

To: Benkea who wrote (1107)	9/28/1999 9:55:00 AM
From: Richard Forsythe	Respond to of 1652

To pick up a theme from "another board", I think WEB's definition of Intrinsic Value bears some discussion (and might even divert attention from the crumbling share price). I had assumed it was roughly the "NPV" from finance 101, whereas other comments suggest it is quite different. Here's my "case" for discussion. If you want to buy an apartment -- 1000 sq.ft, nice area -- how much should you pay? Assume that the apartment next door is being rented (unfurnished) for $1000 per month, and that apartments (cost and rent) have appreciated 5% per year on average. Mortgage's are 7% interest. NPV calculation would regard it as an annuity of $1000 growing at 5%, making the calculation something like 12000/(.07-.05)= $600,000. WEB's intrinsic value calculation seems to go more like, 12000/.07 = $171,428. IV would then increase as the rent increases over time (something WEB indicates he would like to see in his stock price), unlike NPV which would stay pretty much the same over time since the increase is already factored into the price. Clearly if you buy something for IV, you have a deal (who would sell at that price though?). Beyond that, though, does IV make any sense? Is my description of IV accurate? Richard