MICHEL PIREU: Keep it simple when calculating the price of stocks

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MICHEL PIREU: Keep it simple when calculating the price of stocks 🔒

“The newer approach to security analysis attempts to value a common stock independently of its market price,” wrote Benjamin Graham in Security Analysis. “If the value found is substantially above or below the current price, the analyst concludes that the issue should be bought or disposed of. This independent value has a variety of names, the most familiar of which is ‘intrinsic’ value.”

This raises the question: how do you figure out what something is worth? In other words, how do you determine its intrinsic value? Graham’s answer: “A general definition of intrinsic value would be that value which is justified by the facts — assets, earnings, dividends, definite prospects … the most important single factor being average future earning power.” It’s this last most important single factor that is likely to prove disappointing for those hoping for a spreadsheet solution.

 

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