Intrinsic Value

Any great company is a bad invesment if the price is high enough. We have to distinguish between a company and a stock.

A company may be great because it has excellent management and unique service, but it may be a bad investment if the stock fully reflects this information.

Alternatively the stock of a troubled company could be a great buy if the price more than discount all the problems.

Great buying opportunities sometimes arise when investors overreact to bad news. They more than discount all the pessimism about a company and the stock price falls below its intrinsic value.

Cheap enough, any company is a buy. Costly enough, any company is a sell. The trick is finding what a company is worth. Whether a company is good or bad, the stock is good only if it’s selling or less than it’s worth.

The trick is to find what the stock is worth that is the intrinsic value. Discounted cash flow is one of the method.