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Tagged: Intrinsic value

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Hi Stig, Jordan and Mods,

In comparing the current Intrinsic Value spreadsheet (featured in the Intrinsic Value course) with the old Intrinsic Value calculator from the Buffet’s Books website, it seems you have abandoned the idea that book value appreciation + dividends can be used to define “the cash that can be taken out of the business.” This evolution appears reinforced by your new course’s lesson 1.2 on

**How to Value or Not Value Dividend Streams**.I think most of your contemporaries would tend to agree that looking at FCF is a better starting point.

That said, I would like to know if you still find any value in projecting book value appreciation, and if you believe that the old intrinsic value calculator is as theoretically sound as the new one.

I recently came across a compelling article on book value that dissuaded any attempt to project future book value due to the abject uncertainty involved:

In addition, we simply do not know how much the company will spend on new equipment, facility expansion or marketing campaigns. Anything affecting the company’s growth (e.g., the introduction of a blockbuster product) will affect the percentage of earnings actually retained from year to year. Because it is not possible to predict with any amount of accuracy how much a company will spend from year to year, forecasting future book value is largely a waste of time. Even when multiple scenarios are examined, the projected book value will probably be materially different from what the company actually reports.

https://www.aaii.com/journal/article/the-importance-of-book-value.touch

Did this or a similar criticism influence your revised IV calculator?

And on a different note, I wonder why the author’s criticism cannot be applied to projected FCF?

Regards,

John

Daniel,

1) The stock that is being discounted back with 8% to get to the current market price is not a good or bad investment per se. It’s really up to you. If you compare it to the 3% you can obtain by the market index it’s up to you if you would like to incur the extra risk of holding a single stock (if you perceive as such), for that extra return you expect to gain.

I hope that also responds to the second part of question 1.

2) Yes. I would agree with that. I think you can also do that with the goal seeking function in Excel.

Have a great weekend!

-Stig

Price is what you pay. Value is what you get. - Warren Buffett

John,

Thanks for the support!

I think the growth in book value has a lot of merits. I assume you’re referring or lesson 21 in Preston’s course also?

However, due to the high buy back you see in companies today I find it less relevent than a FCF/IRR/DCF solution which is conceptually the same thing.

Sorry for being so short this time 🙂 – and thanks for the support again. Always great to speak to TIPs in the forum!

-Stig

Price is what you pay. Value is what you get. - Warren Buffett

Hello Stig,

I recently read your analysis on Pychemedics Corporation (PMD). I did the intrinsic value on the company using the calculator and the intrinsic value of stock came out to $9.2.

I used the normal Book value formula.

How to justify this, with what your recommendations are in the analysis. I know you used FCF in your analysis. Can you shed some more light on when it is appropriate to go away from the book value to use other variables?

Thank you!

Hamza

Hello Stig,

I recently read your analysis on Pychemedics Corporation (PMD). I did the intrinsic value on the company using the calculator and the intrinsic value of stock came out to $9.2.

I used the normal Book value formula.

How to justify this, with what your recommendations are in the analysis. I know you used FCF in your analysis. Can you shed some more light on when it is appropriate to go away from the book value to use other variables?

Thank you!

Hamza

Hamza,

Thank you for reaching the analysis.

As you point out I used FCF/IRR in the analysis which and not book value growth. It’s two different methods with different pros and cons you can find in the topic if you browse back.

Have a great weekend!

-Stig

Price is what you pay. Value is what you get. - Warren Buffett

Hello Stig and Preston,

How do I leave a question to be played on podcast? and if luckily I get selected, do I get free course voucher?

Many thanks and Merry Xmas to investor community!

Hello Stig and Preston,

How do I leave a question to be played on podcast? and if luckily I get selected, do I get free course voucher?

Many thanks and Merry Xmas to investor community!Hi Apar,

You go to http://asktheinvestors.com

Yes you do.

Thanks!

-Stig

Price is what you pay. Value is what you get. - Warren Buffett

Hello,

So I am a huge fan of the lessons you all have posted and the podcasts. I have started utilizing the online calculators to begin running some various numbers. However, I was wondering if there was an area on the site displaying the underlying equations that those calculations are based on. Calculators are great, but I always like to understand the formulas to reach those answers, should a calculator not be available and to also better my understanding. Thanks!

Wyatt

First of all thanks for your YouTube courses it is awesome. Sir,will the intrinsic calculator work in all the country because I am from India I am getting only few stocks when I filter with the intrinsic values and is there adjustment made while calculations.

Kamalakannan,

Welcome to the forum.

Yes, it will work in any country. Thank you for asking!

-Stig

Price is what you pay. Value is what you get. - Warren Buffett

Hi,

Congratulations for your course. I really enjoyed it. Well explained and great tools.

However, I have several questions to which I would like to get some answers from you.1. The main goal of the course is learning how to calculate the intrinsic value of an stock. However during the course and the excel tool provided we get the IRR% or ERR% which is GREAT but not the same.

I can add this myself to the tool but want to be 100% sure I do it right. Which formula should I apply to the current Market Price? Would it be (Current Market Price x (1+IRR%))?2. On the Intrinsic Value Calculator I have doubts on how you calculate the cell IRR % as it looks different vs what you explained in the course. Looking at the formula this is what it does:

a. it first takes the Market price of the stock (understood)

b. then the projected CF divided by the number of shares (understood)

c. then replicates 5 times the projected value on previous step. Why?

d. And in a later stage looks that it is multiplying the previous values by 0.95. Why?3. During the course you make a lot of focus into the CF as the key indicator to value the performance of a given company. Why then when recommending your “TIP Ratio” you use EBIT? Why not using Cash Flow / Enterprise Value? Your recommendation here is very similar to the one of Joe Greenblatt made with his famous “magic formula” just altering numerator with denominator; avoiding the ROIC piece and recommending a similar strategy to get the top companies listed. I would recommend you guys mention this in your video. It would add more credibility and background to your proposed strategy. It is the strategy one of the top investors in the world! 😉

4. On your perpetuity video, when you propose the formula to calculate the Present Value; when you mention for the numerator using Free Cash Flow, do you refer to the Free Cash flow per share, correct? Otherwise the present values will always be huge amounts.

5. Now that Google Stock Screener is no longer available (you recommend this in section 4), which screener to you recommend where I can input the TIP Ratio? I have seen a lot, but they don’t allow you to apply the formula or filter for the Earning Yield (which I believe Is a similar ratio).

Thank you in advance,

From your friend & fan from Barcelona, Spain.

Alejandro.Hi, is there any significant differences between Intrinsic Value calculator and Ben Graham’s Intrinsic Value?

I checked several companies and there are huge differences in the price. I used online calculator for Ben Graham(finbox.io), but I’m not sure which one is reliable. Any advises?Hi Alejandro,

Thanks for the kind words!

1) IRR

2) I need to look into that!

3) Yes, it’s very similar. EV/EBIT has as a sole metric performed better though, but I like your idea of name-dropping Joel Greenblatt!

4) Correct.

5) I think the free version of Acquirers multiple is the closest you’ll get. It uses EBITDA though instead of EBIT. We’re developing a tool that can do it for you, and it’s being tested over the summer!

Sorry for being so short. And thanks for the support!

-Stig

Price is what you pay. Value is what you get. - Warren Buffett

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