Category Archives: Investment

Estimating Intrinsic Value Like A Boss

The main idea of this post is really simple.

Just keep in mind that if you receive a payment of $100 at the end of each year for the next ten years, those payments are not worth the same in today’s dollars. A $100 payment one year from now is worth maybe $95 in today’s money, while a $100 payment ten years from now may only be worth $60 right now. The total of those payments in today’s dollars is the present value.

Okay, onward…

Every publicly traded stock has more than one value. There is what other people (i.e. the market) say it’s worth at the moment, and there is what you think it’s worth if you were to buy and hold it indefinitely – its intrinsic value.
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Warren Buffett’s Words of Wisdom

Warren Buffett, CEO of Berkshire Hathaway and the world’s most successful investor, writes a much anticipated annual letter to shareholders. He has done so each year since 1965. His letter about the company’s 2013 performance (published March 2014), provides enlightening insight through two successful real estate investments he made.

One is a farm in Nebraska he purchased in 1986 for one of his sons to operate. The other is a retail property in New York City he purchased in 1993 as part of a partnership. He has been to the farm twice, and has never been to the NYC property.

The gist of his advice is to buy investments at a discount to their intrinsic value. And by intrinsic value he means value based on what it is expected to earn or produce over the coming years. Those with steady earnings, low potential downside and high potential upside are solid investments. Once those aspects have been evaluated, with emphasis on future productivity or earnings relative to today, then it comes down to purchasing them at attractive prices.
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Let Your Cash Hit the Road

Successful investing requires vision and strategy for the long road ahead

Develop your investment strategy for the long haul – Photo courtesy Chance Buell

Investments are like passenger seats in which to passively park money while receiving a solid return, more so than a place to actively drive it on a day-to-day basis like a business or occupation. Of course no investment is completely passive, but the idea is that it should only require a small degree of time and attention relative to the return.
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