09/28/2020
This is a chart we made intended to simplify what the concept of intrinsic value is for beginning investors and why it’s important to understand if you’re going to take building your own portfolio through investing in individual stocks seriously.
The concepts of intrinsic value and margin-of-safety have been made famous by Warren Buffett, Benjamin Graham (Buffett’s mentor), and Charlie Munger (Buffett’s Vice Chairman).
The basic concept is: when the stock price is significantly below your appraised intrinsic value of it, you buy it; when the price is above your intrinsic value (i.e., when the market offers you a ridiculous price for it), you might consider selling it. So instead of chasing price charts and trying to time your actions, your main goal is to find out how to calculate the intrinsic value of your stock using the 3 factors of (1) dividends, (2) earning power, and (3) financial health. Once you have a reasonable appraisal, an entire range of prices is open for you to take advantage of as opposed to chasing single price points from the random, turbulent daily ups-and-downs of the market. And if these 3 factors sound familiar, it’s because we use them in each of our Sunday stock screening issues as our screening criteria 😉.
If you’d like to know where to start in learning more about this concept and how to “know what you’re doing,” we suggest reading 📚The Intelligent Investor by Benjamin Graham.📚 We will point you to Graham’s teachings over and over again. Our screening issues are simply a demonstration of his teachings (and likely an amateur version Buffett’s approach since Graham taught him.).
But of course you can casually learn through our Sunday screener issues, and hopefully through time you will be able to see the difference between what we’re rejecting or accepting in each issue (and why), so that you know what an “attractive” stock should look like, but more importantly what a “bad” one looks like as there are overwhelmingly more of them than good ones.
Thanks as always for the support! ♥️