*Important Update - I might a slight error on the margin of safety portion of this video. In order to see the correct way to apply a margin of safety, please watch this video: How to Apply a Margin of Safety like Benjamin Graham! (Margin of Safety Explained + Example) ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-BysGX3ZgLFU.html
as you said, in revised scenario as well, acceptable buy price is less than intrinsic value but how cone its sell option?? or the formula should be current price < acceptable buy price???
Oh thanks ... been spinning my wheels for half an hour trying to unwind what my discrepancy was! I was going to comment, but you've already found the problem.
This video is amazing! nice job! do you know if there is a way to manually calculate your own growth rate pulling the historical data into the sheet? many tks! PS: I made a concatenate function that actually gives the complete yahoofinance link straight into the analysis tab.. easy but effective since you click on the cell and the page magically opens in the right place. scroll down, boom, done.
11:03 I think this is an error since no matter what you have as your Intrinsic and Acceptable buy price as long as the margin of safety is below 100 it will always say Buy. I am assuming here that the comparison should be between current price and acceptable buy price. If Current Price
Yeah, you're right. He should be comparing the estimated intrinsic value to the actual current share price in F26. Also, in reality, you probably wouldn't wait to sell until the stock goes 65% above its intrinsic value. If you sell if it goes say 20% above intrinsic value then the condition should be something like: IF (F26 < F29, “Buy”, IF (F26>(F23*1.2), “Sell”)
I believe that's correct as well. I also noted that the "Difference" calculation is not used in the buy/sell determination. Perhaps it's just an interesting statistic.
@@firsargentum5920 this is to decide rather to buy or not. Once you buy you shouldn’t be looking to sell if you have done your homework for that company.
@@brandyharding7692 You can also use it as a guide to sell if you think the rationale for buying not longer holds, one of which could be that the stock has run up too much and has become overvalued. In any case, the substantive point is that the formula he gave for deciding on the Buy decision is wrong - I'm sure the OP understands the math and probably just effectively made a "typo" :)
@@jle92708 speculation Is a term used in investing to distinguish a value approach based on the analysis of a businesses financials. Speculation is reviewing the stock charge and betting that it will go I do agree that investing requires speculation, though taking a value approach and deeply analyzing a business is using realized data to make more accurate predictions. There are no guarantees of course, but there ways to invest that isn’t just placing a bet because you feel like you can make money
Great content. Acceptable buy price must be greater than Current Price for decision on "Buy", as 'Acc. (10:20) Buy price' is factored from intrinsic value itself. Need to correct this in model 1.
you can just automate this. as per the formula, you can acutally lookup the EPS and other numbers. Download the Script names you want to analyze, and create a dropdown of the scipts. so everytime you select the script, it will give the IV. should not take more than an hour to create this for all 4000 stocks.
It's funny that the entire valuation is based on "expected growth rate over 5 years" which is forecast by a group of investors. My concern is that there is a massive reliance on other people's idea on the shares future value. Would have thought that this reliance defeats the entire point of the valuation. Can anyone confirm how this 5 year growth rate is calculated by the brains trust?
Just my 2 cents, if growth rate is 17.93%, you have to put 0.1793 in the formula, not 17.93, in other words, if a number is expressed in percent, you have to divide percent.
You need to apply some discipline on the units of the parameters in the model. For example, g is a %. It's better to plug in 0.1793 in Excel and format as %. A reality check - is a stock really worth $388 when it generates $5.11 per year?
Thanks a lot. It was very well explained. I also find that the original formula is too agressive. I just think you shouldn't say buy vs sell, because the goal is not being selling stock simply because the market is not there. You should keep your stock if you believe in it. You should put buy vs not buy. To decide if you want to sell you should create a different model, where you incorporate your "pain-level".
Thank you for the video! This helps me a lot! I have a question. If I am doing the calculations with a company that has a negative EPS, and I, therefore, get a negative intrinsic value, what should I do? This seems to throw off my results
Thank you for this. I've wanted to find a IV calculator for Graham for a while. I now officially have three different methods for calculations!🤣 1. Multiple of earnings 2. Discounted Cash Flow and now 3. Grahams. However, since I follow so much of Graham's teachings I think I'll explore this model.
When you use these different methods of calculating IV, do they give close to the same results, or are there big differences between them? If there are big differences between them, which method do you think has turned out to be more accurate?
Warren Buffet doesn't use this. He uses a version of this that uses free cash flow. He doesn't like to use earnings because EPS can be manipulated by management.
@FakeSparrow-lu5ih unfortunately it's a well kept secret by anyone who has the formula. They're unique to the individual depending on the formula. I suggest really diving in and learning as much as you can about the topic. But on our levels, his quote "buy good companies and do nothing" works well.
I think there is a mistake or im confused lol. Your acceptable buy price is .65*Intrinsic value. Which means that the buy price is always lower than intrinsic. So your last sell will always say "BUY". Shouldnt you compare to current price?
Video is well explained. But you could have added that Graham did actually implement two warnings in a footnote that Growth Rates are unpredictable and therefore the formula is basically not very meaningful at all.
Good evening. I have a question...is the 8.5 or 4.4, and the growth rate percentages? I noticed a lot of growth rates are in percentages. For instance one growth estimate was 101.42 % So do I have to change that to 1.0142? Also, your examples, are 8.5 percentages? If they are do I need to change them to .085 or .044? i am really excited about this formula but just am confirming...especially with the growth estimate of 101.42...does that need to be changed or not. Thanks so much.
In your formula for checking if the stock is buy or sell in 10:43, the answer will always be BUY because always will F29 be less than F23 because F29 is a product of percentage(Margin of error) to the F23. Is this formula really correct?
10:46 you make the buy or sell if statement: if the acceptable buy price is less than the intrinsic value buy else sell. But you calculated the acceptable buy price by multiplying 0.65 with the intrinsic value. Shouldn't it be: If current price is equal or smaller than acceptable buy price buy else sell??? I was very confused here. The way you put the buy/sell together it will always want to buy.
Hi! Just some questions out of curiosity. Why multiple average yield of bonds and divide current yield? I just want to know in what sense exactly this calculation is 'the' intrinsic value. By the way, Great lesson for beginner! Thank you! 😄
Best step by step walk through of intrinsic value calculation I've seen so far! Thanks for sharing.❤️💎 Can the bond yields be replaced by other safety instruments - say FD etc?
The video is great and I thank you for your hard work. However, the formula for to Buy/Sell condition is a bit confusing; an acceptable buy price should compare with the current price column I believe. I have watched this video several times. Let me know what you think.
I think you are correct, while copying the formulas on my own spreadsheet, based on the formulas the acceptable buy price should always be less than intrinsic value, hence always a buy What we want to know is: Is the CURRENT price an acceptable price to buy
Great content! Based on this same formula, apple intrinsic value is only $142 as of 02.18.2023. Apparently the growth rate cannot catch up to the corporate bond rate and the eps stays same. Now I understand why these once hot stocks are not hot anymore during inflation. Great formula. Thanks for bringing this to me!
Hello @Dividendology. Could you please reveiw your formula here for buy/sell versus your video posted on margin of safety buy/sell formula and clarify. You use current
I applied the formulas to a few securities in today's market and ... everything is a sell. 🤦♂Is anything a buy after applying the formulas in this video? Can someone provide an example because I feel like I might have missed something in my spreadsheet even after considering the pinned comment. 😭
Thanks for the fine video. If 4.4% was used by B. Graham as the average AAA corporate bond rate, how old is that, and should it be updated and if so how? Thanks...
This is really well explained. Have you created one where you compare an individual stock intrinsic value to just buying an 8% ETF rather than bonds. They weren't around in Graham's time, otherwise I'd think he'd use this higher earning option to compare.
I just followed these steps and the acceptable buy price is 69.00 and the intrinsic value is 106.15. The current price is 195.71 and the valuation says to buy. Someone please explain why I would buy if the acceptable price is lower than the current price
This is good, but the intrinsic value is only part of the decision. It really is only used to determine the buy price by buffet There are several other factors he talked about when making a determination on whether to buy a stock or not. I would also be careful about using future growth projections. That number can distort the IV greatly.
For revised formula, I think the comparison is incorrect. On this one it states to compare Acceptable Price to Current price. Original formula compared acceptable buy price to Intrinsic Value. Both equations should yield a BUY
INTRINSIC VALUE is nothing but perceived value. In this formula “ the next five year’s value” is a projected variable; therefore it comes with +- 5% error variance. So the model is as good as one’s “crystal ball” estimates.
Agree with your statement, and would take it further than +-5% in terms of error variance. As the market is quite chaotic, the projected growth by analysts over the next 5 years is only slightly better than a wild guess.
But I think you MEANT to say Buy/Sell - Current Price is less than Acceptable Buy Price the Buy you said the opposite....let me know please P.S. why would you randomly go margin of safety 65% - you meant to go 1-Difference - Am I Right!?
Brilliant video. Can I please ask, which of the two valuation models would you say is more accurate and the one to actually use when deciding to buy stocks? Because the difference in valuation for the two models is huge.
Prof Damodaran aka Dean of valuation has a different method. The safety margin appears to be a random number and defeats the whole purpose of calculating the intrinsic value.
thanks for sharing. look, what bout the growth rate? you took the 5 years as example, but there is not time function on the equation. i believe it should be relevant if you take 3 , 5 or 10 right? or im missing something.? thanks
Nice and easy explanation that I do like together with the excel hints - thanks for that. But I’m struggling with the content itself. My questions/notes: 1. can you please share the source for the revised version that you used? Would be interesting to see, now Just like that looks a bit randomly 2. Unfortunately you didn’t explain how to deal with the PE ratio - how to distinguish a no-growth stock and a growth Stock and what Number should be used in certain situations. There is no detailed explanation needed, but at least it should have been mentioned somehow 3. if the 4.4 average yield was so stable and good to use it’d be good to explain why this is the case / why the ratio of the yields is even needed in this formula. A link or source would be good enough 4. you should/could have stated that it’s also important to know which EPS is used. You automatically used the TTM which is one (maybe good) option but not necessarily a good forecast. Overall by watching the video I’m unfortunately not feeling confident enough to follow your model. Would be great to get feedback, thanks!
It would be more useful and important to explain the formula and its variables: Why do I divide by Corporate Bonds Interest Rate? Why do I multiply by average corporate interest rate? Why do I use a margin of safety? Why is the earnings per share important for the price evaluation? (Diminishing returns in the future I guess, but I came here to learn this) What do other Models differently and why? Do I differentiate between growth and value stock? What if the growth rate is negative? Are you sure you can add P/E and growth rate together? One is a ratio, the other is a percentage value. Like this it is more like an excel tutorial, which is also important, but I watched the video and I still don't know HOW an intrinsic value is calculated. Rant aside: I like your every video about finance that is calm and without spreading FOMO. 👍
My autistic brain will try to make sense of it. Let's just go left to right. - EPS > Earnings per share is kind of like the current state of the company in this example. Please note that with a negative EPS this formula will give wacky results. if growth rate is also negative, it will give a false positive result!!! - P/E 8.5 > This also kind of serves like basis. ( I think the way it is used like this is: with growth rate, the EPS usually increase, but also stock price. Stock price and earnings affect P/E. If we add growth rate to the default 8.5, we get a very large ""P/E"", from which this formula guesses a future stock price) - 2*Growth Rate > I guess the idea to multiply the projected growth rate, is because there is no real way to make a forward projection of 10+ years. I think it should also be noted that you cannot see this as company will continue to grow at the projected 5 years avarage. I think the idea really is more like for a timeframe of 20-30 years or so. - Average yield on Corp Bonds > If in history the average yield on Corp Bonds is 4.4, this more or less means that companies need to atleast outpace this %, because they pay it to Bond holders. - Current yield on Corp Bonds > If the current yield is lower that the average historical yield, the company is more or less borrowing money at a discount. If the current yield is higher, the company borrows money at a premium. Please note: yield on bonds have some relation with both inflation and interest rates. It tells something about the current economic situation and monetary policy, compared to historical average trend. It is an external factor that influences the company - In my opinion the growth component is a bit eyeballing short term, but I'm quite sure it will provide an indication long term. De safety margin is to be used here, for example a startup can have a very fast growth, which may not be sustainable. While long lasting companies may have a slower growth, yet stable. Let's make an easy example. Ticker EXAMPLE.The current stock price is $10. This company has no projected growth. The EPS is 1$. 1 * 8.5 * 4.4 / 2.8 (~ yield july 2022) = $13.35 (Intrinsic value). ---> Because current stock price is $10, the company is undervalued Fantasy very high yield example: 1 * 8.5 * 4.4 / 7.8 (fantasy yield) = $4.79 (Intrinsic value) ---> Company is severly overvalued just my 2 cents
Goodness. Buffett literally, every time he is asked questions about calculations regarding intrinsic value, specifically says he doesn’t use spreadsheets and formulas.
Amazing thank you so much. I've been looking for this explanation and steps for a while now. can you go a bit more into detail on the margin of safety , how does one choose a proper margin of safety.
I’m glad you enjoyed the video! Understanding intrinsic value is a game changer for investing. As far as margin of safety is concerned, it’s essentially a way for investors to provide some margin for error in their calculations. At the end of the day, margin of safety is up to the individual investors risk tolerance. Aggressive investors may have a smaller margin of safety, and risk averse investors will likely have a larger margin of safety. I’ll likely make a video of margin of safety in the future.
(2x g(17%) growth) is a percentage shouldn't it be 2x .17 instead of 2x 17? Further, stocks trade at multiples so then you would need to apply a multiple to see the actual value now at 26 times earnings?
Quick question for anyone with more grey matter upstairs than myself: ------------ They Buy/Sell formula seems to only look at acceptable buy price vs. intrinsic value. What if the current price is higher than acceptable buy price, but still lower than intrinsic value. Is there a way to use a formula (IFS for example) to list buy if: - Acceptable buy price is below intrinsic value AND - current price is belowe acceptable buy price ???
Hello, Thanks for the very interesting topic. According to the ChatGPT the value should be calculated by this formula: Intrinsic Value= SQRT ( (22.5 * EPS over last 3 to 5 years)/ 10-Year Treasury Yield) What do you mean about it? Regards
Great video !!! Thank you so much !! Wanted to ask if the “Y” is applicable in non us markets as well (I mean if I own a non us stock do I follow the same process to find the number you showed) and if the number “4,4” is always the same. Thanks again
Initially, the formula that you used for the Buy/Sell price stated to buy the stock if it's acceptable buy price was less than the intrinsic value. But, in your revised formula, the acceptable buy price remained less than the stock's intrinsic value. Therefore, it appears that you must have changed the variable from the IF() statement in your revised formula from being the "intrinsic value" to being the "current price". I would greatly appreciate some clarification; but regardless, thank you for the video!
@@Dividendology My apologies, I just saw the pinned comment. Regardless, It wasn’t a big deal at all and I fixed it immediately after noticing the mistake. Thanks again for the video & information, I’ve already incorporated it into my interactive dashboard!
The 1st model (original) I think would come in handy at the bottoms after huge bear markets and the 2nd one would be applicable at the end of a long bull. However that is easier said than done and require more analysis.
You did a good job in your video. But I’m from the future. November, 2023 to be exact. And for Verizon, selling short will make you rich. For Apple, buy it and hold until my time. Glad I was able to help you past humans. These lessons remind me of what Lou Rukeyser would say after getting wildly differing estimates of future markets from his guests. Paraphrasing: “One thing is certain, some of them will be wrong”.
In your video about the safety margin the calculation for the Buy or Sell is based on the current price and the acceptable buy price rather than the acceptable buy price and the intrinsic value. Can you please explain why this is different?
I did what you told me to do, and Amazon's buy price is $89.52 the acceptable buy price is $4.40, and its saying to buy. This doesn't make sense. I tried what you said twice. Any advice?
Today is Sept 1, 2023, Current yield of Corporate AAA bands 4.66. I am looking into AAPL, current price $189.46, next 5 yrs growth 6.36%, EPS 5.96, calculated intristic value $119.21, acceptable buy price $77.49. But since acceptable buy price is less than intristic value, the suggestion is "Buy". Why? The stock is over-valued at the moment, right? Wouldn't I have to wait until it drops below the intristic value? So perhaps, if the acceptable buy price is less than the current price.... Second example, NVAX, has negative EPS as well as negative growth. Current price $8.21, EPS -7.1, growth in next 5 years -69.60%. because of negative/negative, the intristic value jumps to a whooping $897.17. However, this is a nice video, explains Graham model in an easy to understand manner, but adjust it to your own margins. I really like that google sheets can pull the information directly from the finance page.
Question>>>>>>>>>>So Loved this video and right away added you to follow. I did not understand one thing, The acceptable Buying Price. So for example I currently ran Ford threw this formula right, my intrinsic value was $0.84 my current value is $11.64 my difference is 1379.30% and my ACCEPTABLE BUYING PRING is $0.55. Here is my question do I buy cause its $0.55 less then the intrinsic value of $0.84 . Or am I waiting for it to drop from current price of $11.64 to $0.55 to buy? I understand I must take all factors into consideration before investing and that you are not legally binding to any guidance you may give me. I just need to learn this one aspect of this formula that is messing me up to be able to do what I must do. PLEASE HELP
I did the same formula you did for the revised valuation for the buy/sell, Ended up with the same exact calculation as you did but why is it still saying on my end a buy not a sell? 😅
Are you sure at 10:50 in the video the Buy/Sell comparison is being done correctly? Should you be comparing the current price to the Acceptable Buy Price?
I don't see any calculation using the current price? So if the current price is higher than the intrinsic value and the acceptable price, you still should buy based on the acceptable price being lower than the intrinsic value?
