▼

Tuesday, 9 December 2008

Value Investing: A Philosophy More Than a Formula

Value investing is based more on philosophy. Those who studied directly under Graham are careful to explain that Graham and Dodd's Security Analysis and Graham's The Intelligent Investor are not cookbooks for the investment professional. There is no step one, step two, and step three. Graham's purporse was to make his students use the deductive process to think for themselves.

Despite continual examination, questioning, probing, and tweaking of the Graham and Dodd concepts, the very basics - the fundamentals - remain intact.

Three Key Concepts

When Warren Buffett talks about his training under Graham, he says that the two most important things he learned at Columbia University were:

  • The right attitude
  • The importance of margin of safety

By listening to Buffett speak and by reading Berkshire Hathaway's annual reports, a third key Graham concept surfaces repeatedly, that of

  • Intrinsic value.
at

2 comments:

  1. AnonymousWednesday, December 10, 2008 10:27:00 am

    Can you show us some examples or may be the formula to calculate the intrinsic value of a company?

    Thanks

    http://investoger.tk

    ReplyDelete
  2. investbullbearWednesday, December 10, 2008 8:33:00 pm

    http://myinvestingnotes.blogspot.com/2008/12/value-investing-and-intrinsic-value.html

    http://myinvestingnotes.blogspot.com/2008/12/intrinsic-value-impossible-to-pinpoint.html

    http://myinvestingnotes.blogspot.com/2008/12/investment-philosophy-strategy-and.html

    cltai2010,

    You may find the above posts useful to find some answers to your query.

    Intrinsic value is not a unique number. It can varies widely and is dependent on your assumptions and methods used.

    More importantly is to assess the Quality of the Business (Company) and the Honesty and Integrity of its Management. Having determined these, then the Valuation (determining the intrinsic value). An article described this as the QVM method.

    Always buy at a price much below the "intrinsic value" to give yourself a margin of safety.

    There are times when you may not need to do any calculation as the price is obviously too high or too low compared to the "intrinsic value."

    BB

    ReplyDelete