Warren Buffett: How to Calculate Intrinsic Value

In this video, Warren Buffett talks about how to calculate inherent business value. And how he uses this formula as a way to buy businesses.

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[InvestorCenter]

Buffett is so wise. These students were incredibly lucky.

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Q: So you’ve got formulas involved...?

Buffett: Discounted present value of future cash, yeah.

[markluptonjr]

Investing = How much will you get? When are you gonna get it? How sure are you that you'll get it?

[ironcito]

His formula is like the Drake equation: it tells you the variables that you need to calculate the result, but the values of those variables are unknowable in advance. Future profits minus a discount rate, yes, but you can only guess those future profits and that discount rate.

[karthickraja]

That was really a very good explanation about returns on investing.

[maxwellhouseinator]

This video could be titled “most successful investor of all time provides a high level overview of a DCF to students” lol

[abcd-byrw]

When was this filmed? Interstesting he says that Coca-Cola market cap is $115bn and today it is $195bn!

[CommandoX]

"In the case of Internet companies, there weren't any birds in the bush." Terrific.

[robin]

NFTs are the late 90s all over again.

[Adam-uief]

Do you adjust for the fact not all cash is returned to investors. If a company is keeping 30% of profits and getting an annual ROE of 20%. Do you compound that 30% profit at 20% in your forecast model years into the future before discounting it back to the present value at an appropriate rate.

DCF models are easy, but its a matter of interpreting them and knowing what discount rates and growth rates to use. There is something in Buffets mind that he cant explain, something that is unique to only him.

[KBellate]

The concept is very simple, it's your input that makes it difficult. Here's a straightforward example.

Suppose you have $10, assuming the annual interest rate is 7.18% (discounted value). In 10 years, you will have ~ $20.
Now you go to a store (Stock exchange) and shop for a money printing machine (Stock).
You see a money-printing machine (which will print out $1 a year) that is selling for 8-10 times its yearly earnings most of the time ($1/year * 8 or 10 = $8~10 ).

Then you will see if it makes sense for you to buy the money-printing machine.
1. If the $10 is sitting at the bank, 10 years later you will have $20
2. If you buy the money-printing machine for $10 today, and your goal is to sell the machine 10 years later, you will have $10 (the machine) + $10 (printed out) = $20.

Based on that, you will know that if you pay $10 for the machine, you will break even. If you wait until the machine is on sale selling for $8. It will be a better investment.

In a real situation, you will have to factor in the growth rate for the earnings, how much the company is going to sell...etc. You will really have to dig deep into the 10-K of the company and understand the industry to find a sensible intrinsic value.

[bartoszdobroslaw]

Great stocks and I just bought in on them, but I'm interested in making short term profit, let say turn a $150K to $500k in 6months, I'd appreciate tips on how what stocks to buy to make this much profit.

[Bellephrontos]

1. How much are you getting
2. When are you getting it
3. How sure are you you will actually get it

[philochristos]

I made Excel spreadsheets for four different methods of calculating intrinsic value that I got from various YouTube videos, and they each give very different results. I find that discouraging.

[BeachBoi]

Looking at hindsight is very easy. I tried to calculate instrinic value and got very funny values. I puck the CAPM values from my imagination.

[egor.okhterov]

«Discount rate doesn’t get much difference as you get further out».
Could someone elaborate what that means?

[playlistjohnnybitter]

I'm going to use this with a girlfriend

[candyfloss]

How much money, how much sure and when

[fakeid]

what does he actually mean by "can we distribute enough cash to you soon
enough to make a sensible at present interest rates to lay out the cash now"
??

[woodyboy]

How old is this video? I’d like to read the annual report Buffett is referring to 👌🏻