Intrinsic Value

“I never want to pay above intrinsic value for stock – with very rare exceptions where someone like Warren Buffett is in charge.  There are people – very few – worth paying up a bit to get in with for a longer term advantage. “  Charlie Munger

“Of course, it's per-share intrinsic value, not book value, that counts.  Book value is an accounting term that measures the capital, including retained earnings, that has been put into a business. Intrinsic value is a present-value estimate of the cash that can be taken out of a business during its remaining life.  At most companies, the two values are unrelated.” Warren Buffett

"Intrinsic value is the number, that if you were all knowing about the future and you could predict all the cash a business would give you between now and judgement day, discounted at the proper discount rate, that number is what the intrinsic value of the business is.  In other words, the only reason for making an investment and laying out money now is to get back more money later on. That's what investing is all about. When you look at a bond it's very easy to tell what you get back, it says it right on the bond, it says when you get the interest payments and the principal.  The cashflows are printed on the bond, the cash flows aren't printed on the stock certificate.   That's the job of the analyst, to change that stock certificate, to change that into a bond. To say that's what I think it will pay out in the future"  Warren Buffett

Intrinsic value, is in its simplest form the discounted present value of future cash flows” Frank Martin

“Book value is meaningless as an indicator of intrinsic value.” Warren Buffett

“Generally, we believe that identifying a significant difference between the market value of a security and the intrinsic value of that security is what defines an investment opportunity.  We define intrinsic value as the amount that would accrue to the owners of a security if the underlying company were sold to a rational and well-informed buyer, or the company was liquidated with the proceeds distributed to security holders, or where the particular security sells at a price that would yield no better than a security considered ultra-safe, such as a US Treasury note or bond”  Lou Simpson

"It is important to understand that intrinsic value is not an exact figure, but a range that is based on your assumptions" Jean-Marie Eveillard

“We define intrinsic value as the discounted value of the cash that can be taken out of a business during its remaining life. Anyone calculating intrinsic value necessarily comes up with a highly subjective figure that will change both as estimates of future cash flows are revised and as interest rates move.  Despite its fuzziness, however, intrinsic value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.”  Warren Buffett

"Market price is the price the stock is currently trading at. It is determined by supply and demand of sellers at a point in time and may have no relationship with private market or intrinsic value." Li Lu

“Calculations of intrinsic value, though all-important, are necessarily imprecise and often seriously wrong.  The more uncertain the future of a business, the more possibility there is that the calculation will be wildly off-base.” Warren Buffett

“If the estimation of intrinsic value is deemed substantially unreliable, there is simply no way to determine the extent to which the current market price affords a margin of safety”  Frank Martin

"The stock market is dominated by participants that perceive stocks almost as casino chips. With that knowledge, we can then buy great businesses sometimes well below their intrinsic value" Francois Rochon

“Buying a company below its historic average or intrinsic value (as that is how low quality businesses will often be valued when they are close to the nadir of their capital cycle) is a good starting point for any investment and has a track record of producing excess long-term returns” Marathon Asset Management

"Growth in corporate intrinsic value is often obfuscated by stock price movement, which does not appropriately track the accretion in business value. That’s good for all of us who are appraisers of businesses, because it means you get more mispricing and better opportunity to get a franchise at a cheap price." Mason Hawkins

"We don’t let short term price movements alter our behavior. Our investment decisions really have to do with value and measuring and trying to gauge the underlying intrinsic value of a company. What I’m saying is: When the stock price of a company is falling we don’t just abandon ship and sell." David Herro

"Market prices, let me stress, have their limitations in the short term.  Monthly or yearly movements of stocks are often erratic and not indicative of changes in intrinsic value. Over time, however, stock prices and intrinsic value almost invariably converge"  Warren Buffett

"The price of any particular security can be pictured as something resembling a captive balloon attached, not to the ground but to a wide line traveling through space. That line represents "intrinsic" value. As time goes on, if a company's earning power and true prospects improve, the line climbs higher and higher. If these or other basic ingredients of intrinsic value get worse, the line declines correspondingly. At any one time, the psychological influences (i.e., how the financial community is appraising these more fundamental matters of intrinsic value) will cause the price of the particular stock to be anywhere from well above this line to well below it. However, while momentary mass enthusiasm or unwarranted pessimism will cause the stock price to be far above or well below intrinsic value, it, like our captive balloon, can never get completely away from the line of true value and will always be pulled back toward that line sooner or later." Phil Fisher

"The concept of a margin of safety is that an investor should purchase a security at a price sufficiently below his estimate of its intrinsic value that he will have protection against permanent loss even if his estimate proves somewhat optimistic.” Ed Wachenheim

“While market values track business values quite well over long periods, in any given year the relationship can gyrate capriciously.” Warren Buffett

“A stock return will eventually echo the increase in per share intrinsic value of the underlying company (usually linked to the return on equity).” Francois Rochon

“Over time, of course, market price and intrinsic value will arrive at about the same destination.  But in the short run the two often diverge in a major way” Warren Buffett

“When we talk about business quality, we’re looking through our fundamental research to assess the company’s ability to protect and grow intrinsic value. If the dollar of assets you buy is increasing in value at an above-average rate, that’s an opportunity to generate alpha.” Ricky Sandler

“A couple of bad years of earnings shouldn’t determine the intrinsic value of those companies” Matthew McLennan

“Cyclical factors have also hurt our current look-through earnings, but these factors do not reduce intrinsic value.” Warren Buffett

“Understanding intrinsic value is as important for managers as it is for investors.  When managers are making capital allocation decisions - including decisions to repurchase shares - it's vital that they act in ways that increase per-share intrinsic value and avoid moves that decrease it.  This principle may seem obvious but we constantly see it violated. And, when misallocations occur, shareholders are hurt.”  Warren Buffett