Money and Finance
A little math for a Monday morning:
Buy a stock at 50 percent (1/2) of intrinsic value, sell at 90 percent of initial intrinsic value:
IRR if it takes 2 years: 34.16%
IRR if it takes 3 years: 21.64%
Buy a stock at 67 percent (2/3) of intrinsic value, sell at 90 percent of initial intrinsic value:
IRR if it takes 2 years: 16.19%
IRR if it takes 3 years: 10.52%
Buy a stock at 50 percent (1/2) of intrinsic value, sell at 120 percent of initial intrinsic value (value increased):
IRR if it takes 2 years: 54.92%
IRR if it takes 3 years: 33.89%
Buy a stock at 67 percent (2/3) of intrinsic value, sell at 120 percent of initial intrinsic value (value increased):
IRR if it takes 2 years: 34.16%
IRR if it takes 3 years: 21.64%
It is interesting to note that buying a dollar's worth of value for $0.50 and selling it for $0.90 after 2-3 years, is the equivalent (on a return basis) of buying a dollar's worth of value for $0.67 and selling it for $1.20 after 2-3 years. This a good illustration of why you should require a larger margin of safety for a business that is not growing its intrinsic value, and be willing to pay a little more for a business that is growing its intrinsic value.
- A Few Comments On Warren Buffett And Coke
I've seen a number of people, many who consider Buffett a hero and are not normally so quick to jump to conclusions when he says something, express disappointment over some of the comments Mr. Buffett has made about the Coca-Cola compensation plan,...
- Graham And Dodd Quote (example Of The Range In Estimating Intrinsic Value)
From Security Analysis, 1940 edition: “This should indicate how flexible is the concept of intrinsic value as applied to security analysis. Our notion of the intrinsic value may be more or less distinct, depending on the particular case. The degree...
- Joel Greenblatt Quote (6% Minimum Return)
“I always assume that my minimum bogie is at least a 6 percent return, even if interest rates are near zero, as they are now. Moreover, I have to beat 6 percent by a measurable amount because the assumption is that the 6 percent is risk-free. So I wouldn’t...
- Benjamin Roth Quote On Investing
From The Great Depression: A Diary, and written in September of 1931: “The wise investor will disregard the day-by-day fluctuations of the stock market or real estate market and base his buying and selling on these long periods of rise and fall. Above...
- The Effect Of Discount Rates On Intrinsic Value
The discount rate you use in a discounted cash flow valuation can have a big effect on an intrinsic value calculation. To illustrate, let's use an example based on the following assumptions:-Earnings Per Share Year 0: $1.00Growth Years 1-5: 12%Growth...
Money and Finance
The Effect that Buying with a Margin of Safety has on Your Returns
A little math for a Monday morning:
Buy a stock at 50 percent (1/2) of intrinsic value, sell at 90 percent of initial intrinsic value:
IRR if it takes 2 years: 34.16%
IRR if it takes 3 years: 21.64%
Buy a stock at 67 percent (2/3) of intrinsic value, sell at 90 percent of initial intrinsic value:
IRR if it takes 2 years: 16.19%
IRR if it takes 3 years: 10.52%
Buy a stock at 50 percent (1/2) of intrinsic value, sell at 120 percent of initial intrinsic value (value increased):
IRR if it takes 2 years: 54.92%
IRR if it takes 3 years: 33.89%
Buy a stock at 67 percent (2/3) of intrinsic value, sell at 120 percent of initial intrinsic value (value increased):
IRR if it takes 2 years: 34.16%
IRR if it takes 3 years: 21.64%
It is interesting to note that buying a dollar's worth of value for $0.50 and selling it for $0.90 after 2-3 years, is the equivalent (on a return basis) of buying a dollar's worth of value for $0.67 and selling it for $1.20 after 2-3 years. This a good illustration of why you should require a larger margin of safety for a business that is not growing its intrinsic value, and be willing to pay a little more for a business that is growing its intrinsic value.
- A Few Comments On Warren Buffett And Coke
I've seen a number of people, many who consider Buffett a hero and are not normally so quick to jump to conclusions when he says something, express disappointment over some of the comments Mr. Buffett has made about the Coca-Cola compensation plan,...
- Graham And Dodd Quote (example Of The Range In Estimating Intrinsic Value)
From Security Analysis, 1940 edition: “This should indicate how flexible is the concept of intrinsic value as applied to security analysis. Our notion of the intrinsic value may be more or less distinct, depending on the particular case. The degree...
- Joel Greenblatt Quote (6% Minimum Return)
“I always assume that my minimum bogie is at least a 6 percent return, even if interest rates are near zero, as they are now. Moreover, I have to beat 6 percent by a measurable amount because the assumption is that the 6 percent is risk-free. So I wouldn’t...
- Benjamin Roth Quote On Investing
From The Great Depression: A Diary, and written in September of 1931: “The wise investor will disregard the day-by-day fluctuations of the stock market or real estate market and base his buying and selling on these long periods of rise and fall. Above...
- The Effect Of Discount Rates On Intrinsic Value
The discount rate you use in a discounted cash flow valuation can have a big effect on an intrinsic value calculation. To illustrate, let's use an example based on the following assumptions:-Earnings Per Share Year 0: $1.00Growth Years 1-5: 12%Growth...