Value Investing
What is value Investing?
Value Investing is a concept given by Benjamin Graham and involves 3 fundamentals:
- Identifying under-appreciated companies
- Purchasing them at discounted prices
- The margin of safety
The idea behind value investing is to find companies whose stock prices are trading at a discount to its intrinsic value and to buy with a margin of safety to minimize downside risk. The risk of money loss gets reduced because you are already paying less than the company’s value.
What is Intrinsic Value?
“Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life.
The calculation of intrinsic value, though, is not so simple. As our definition suggests, intrinsic value is an estimate rather than a precise figure, and 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, moreover – and this would apply even to Charlie and me – will almost inevitably come up with at least slightly different intrinsic value figures. “ — Warren Buffett
Warren Buffett’s Philosophy
Warren Buffett’s investment philosophy is an evolution of Benjamin Graham’s value investing theory, but over the years he has added his ideas. Buffett improvised his investing strategy after meeting Charlie Munger. Currently, Warren Buffett’s decision-making process centers on:
- Intrinsic Value
- Margin of safety
- While prioritizing the quality of the business
Warren Buffett once said in a letter to his shareholders:
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
This is because high-quality companies are more likely to provide sustainable growth and generate long-term value for shareholders.
Note: We will discuss this more in our next course.- Value Investing.
What is value Investing?
Value Investing is a concept given by Benjamin Graham and involves 3 fundamentals:
- Identifying under-appreciated companies
- Purchasing them at discounted prices
- The margin of safety
The idea behind value investing is to find companies whose stock prices are trading at a discount to its intrinsic value and to buy with a margin of safety to minimize downside risk. The risk of money loss gets reduced because you are already paying less than the company’s value.
What is Intrinsic Value?
“Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life.
The calculation of intrinsic value, though, is not so simple. As our definition suggests, intrinsic value is an estimate rather than a precise figure, and 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, moreover – and this would apply even to Charlie and me – will almost inevitably come up with at least slightly different intrinsic value figures. “ — Warren Buffett
Warren Buffett’s Philosophy
Warren Buffett’s investment philosophy is an evolution of Benjamin Graham’s value investing theory, but over the years he has added his ideas. Buffett improvised his investing strategy after meeting Charlie Munger. Currently, Warren Buffett’s decision-making process centers on:
- Intrinsic Value
- Margin of safety
- While prioritizing the quality of the business
Warren Buffett once said in a letter to his shareholders:
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
This is because high-quality companies are more likely to provide sustainable growth and generate long-term value for shareholders.
Note: We will discuss this more in our next course.- Value Investing.