How To Calculate Intrinsic Value (With Example) | Value Investing
How To Calculate Intrinsic Value (With Example) | Value Investing
The method that we will be focusing, on is a type of Investment Methodology known as Value Investing.
The fundamentals of Value Investing is that you should only buy a stock that you believe is trading under its real/intrinsic value.
So for example let's look at the price of Apple Stock. The current market price if we look online is $162.51, if we wanted to buy one stock of Apple.
This market price that we see here doesn't necessarily mean that it is a fair price for Apple and this is because Companies that are publically traded will have their Share Price influenced by External Factors.
Speculation and demand for a stock can sometimes over and undervalue the market price, which will see it diverge from its intrinsic value.
Calculating the Intrinsic value is no exact science. Warren Buffet who is king when it comes to Value Investing says:
"The calculation of the intrinsic value.... is not so simple. As our definition suggests, the intrinsic value is an estimate rather than a precise figure. It is additionally an estimate that must be changed if interest rates move or forecasts of future cash flows are revised.
Two People looking at the same set of facts....will inevitably come up with at least a slightly different intrinsic value".
And the same will ring true for my calculation of the intrinsic value. When you try and find other videos on calculating Intrinisic value no methods seem to be the same.
The method I will be teaching is what I learned whilst reading a book called Warren Buffett’s 3 Favorite Books: A guide to The Intelligent Investor, Security Analysis, and The Wealth of Nations.
I can't highly recommend this book enough, it does a great way of summarising all 3 books, but also it eases the reader into the essential fundamentals before migrating into more of the technical stuff. So it is really good for beginners as well as intermediates.
Chapter Information (How To Calculate Intrinsic Value):
0:00 Introduction
0:22 What is Value Investing
2:46 Calculating Intrinsic Value Demo
🔹 Financial Madness Intrinsic Value Spreadsheet: https://docs.google.com/spreadsheets/...
🔹 Yahoo Finance: https://uk.finance.yahoo.com/
🔹Stock Row: https://stockrow.com/
DISCLAIMER - Any advice or (statements perceived to be advice) given in this video and any other videos on my channel are for information purposes only, and does not act as financial advice. You are fully responsible for your financial decisions. If you are in need of Financial Advice, please seek out a professional advisor. If you are unsure of how to do this, feel free to reach out to me and I am more than happy to guide you.
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