Intrinsic Value Formula from Lesson 21 of Buffettsbooks.com

Hi Guys, could anyone explain to me the intrinsic value formula that was used in lesson 21 of Buffettsbooks.com?

I've been researching on the formula, but could not find the one that match the intrinsic value calculator that was shown in the lesson video.

Thanks for the assistance.

Comments

  • @Giam,

    I think the formula you are referring to is as follows;

    IV = Div* (1-(1/(1+i)^n))/I+FBV/(1+i)^n

    It's essentially a compounded annual growth rate calculation based upon retained earnings (which feeds into Book value) and distributed earnings (dividends).

    Regards,

    David
  • edited December 2017
    David,

    what if I want to find I instead of IV. What would be a equation to find I? the equation is so bracketed I just don't know how to reverse the equation.

    IV = C * [1-[1/(1+I)^n]]/I + M/(1+I)^n
  • David,

    I tried to use for a math solver and (I) can not be solved with this equation. so now my question. if I know the intrinsic value and the current stock price. What would be an appropriate equation to calculate the yield at current stock price?

  • okay I found the formula. This formula IV = C * [1-[1/(1+I)^n]]/I + M/(1+I)^n is basically a coupon yield that calculate annuity and future value.

    With this formula, it assumes that the dividend yield will not change at all. This is a flaw I'm seeing so far. But anyhow if you want your excel spreadsheet to auto update the yield at current price then using this function below.

    I =rate(N, C, -IV,M)

    I = yield at current stock price
    N = period of how long, I use 10 years
    C = Dividend yield
    IV = Current stock price
    M = Future book value

  • Or, you could just buy the SP500 index fund, SPY, and go fishing...
  • if you want to be average and that is fine.
  • edited January 8
    Average got you $48 for every dollar invested in the sp500 in 1982.
    According to Bogle, only 20% of large cap mutual funds did beat the SP500over any 20 year period. So, you do have a chance to out perform..good luck. Of course that SP500 record is only true if you have zero commissions and zero taxes. Actually, if you buy and hold a low cost mutual fund like Vanguard, you do have zero commissions and zero taxes..
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