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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: ValueGuy who wrote (41710)	3/12/2011 3:15:37 PM
From: E_K_S	Read Replies (1) \| Respond to of 78748

Hi Faizui - How are you defining "Intrinsic Value"? Different definitions from a Google search: 1) "The actual value of a security, as opposed to its market price or book value. The intrinsic value includes other variables such as brand name, trademarks, and copyrights that are often dificult to calculate and sometimes not accurately reflected in the market price. One way to look at it is that the market capitalization is the price (i.e. what investors are willing to pay for the company) and intrinsic value is the value (i.e. what the company is really worth). Different investors use different techniques to calculate intrinsic value." OR 2) "An alternative, though related approach, is to view intrinsic value as the value of a business' ongoing operations, as opposed to its accounting based book value, or break-up value. Warren Buffett is known for his ability to calculate the intrinsic value of a business, and then buy that business when its price is at a discount to its intrinsic value." Below is a fun Web Site called Buffet's Valuation Formula. Buffet always trys to keep things very simple. moneychimp.com Buffett's Value Formula (?) Warren Buffett hasn't exactly published his formula for what he calls the intrinsic value of a company, but he has dropped a number of hints. He apparently multiplies estimated future earnings by a confidence margin between zero and a hundred percent (a bird in the bush being worth 0.5 birds in the hand, and all that; bush birds are the earnings you hope for, and hand birds are the earnings you're confident will materialize). He then compares these probable earnings with something he has total confidence in, by using a U.S. treasury yield as his discount rate. In calculator form it looks like this: It will be interesting to see what general definitions are used among our Value Investing group to arrive at a "fair" value price. I tend to use a variation of the PE ratio based on my best guess for forward earnings and compare the result to the Industry sector/sub-sector PE. I generally will consider an investment fairly (or Over) valued when the Industry PE = or (<) to my estimated PE. EKS

To: ValueGuy who wrote (41710)	3/13/2011 12:02:56 AM
From: Paul Senior	1 Recommendation Respond to of 78748

I find that I agree w/Jurgis Bekepuris regarding intrinsic value. I never calculate it. Not sure I even could with any confidence. Looking through my copy of "Intelligent Investor", I don't see any mention of "intrinsic" in the index. If I can determine fair/full value or have some good idea and reassurance that a stock is undervalued, that has worked well-enough for me. Some businesses are valued by the investment community using specific metrics. You may (or may not) go along with those metrics to determine if a stock in that business is undervalued. On this thread, recently, small e&p companies have been discussed with a "commonly-accepted" (my opinion) or "sometimes accepted" way to measure them, e.g. 2pnav or flowing barrels. My point is that if you know the particular business or industry, there may be generally-used metrics within that sector that clue you into whether a company might be undervalued or not. In general, for me for most businesses I use a type of low p/e, high roe metric. I find it simple, easy, effective. Sometimes I'll use low p/e (a low absolute number), low historical p/e (company compared to itself), low p/sales, or price below nav. Once in a while I will break down and use low relative p/e, by which I mean low p/e of company compared to its peers. (I find low relative p/e investing to be very very dangerous though.) On this thread, imo, it's generally not a concern that some methodology is too simplistic. Simplistic usually isn't the issue. Imo, in value investing it's not so much about being clever or sophisticated in evaluating a stock. It's often more about having the patience to sit on a stock once it's bought. And of course, having the courage/confidence to buy something that's a value stock -- unloved, down in price and maybe dropping further after being bought.

To: ValueGuy who wrote (41710)	3/13/2011 12:37:58 AM
From: Madharry	Read Replies (1) \| Respond to of 78748

perhaps i am just being lazy, but historically analyst have done an awful job at estimating earning too far into the future so I tend to purchase based upon either back of envelope calculations or i look for a discount to the companies assets and i tend to accept market valuations for those assets. so for me buying is way easier than selling. the worst mistakes i have been made have either been in new situations or selling too soon Disney and Apple come to mind, because they were no longer the bargain they were when i first bought them. Of course they then appreciate many fold after I sold them . so if u find any good selling parameters let me know.