How to Calculate the Intrinsic Value of a Stock like Benjamin Graham! (Step by Step)
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In this video, I take you step by step on how to calculate the intrinsic value of a stock using the formula created by Benjamin Graham and made popular by the book, "The Intelligent Investor." This formula has been used by many famous investors, including Warren Buffett.
*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)
• How to Apply a Margin ...
I am not a Financial advisor or licensed professional. Nothing I say or produce on CZcams, or anywhere else, should be considered as advice. All content is for educational purposes only. I am not responsible for any financial losses or gains. Invest and trade at your own risk.
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#IntrinsicValue #BenjaminGraham #StockValuation
*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)
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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???
@@anilkhadka2092 correct formula at 15:38 , look at the formula box....
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.
the growth rate express in percentage should be computed as percentage, so the intrinsic value is only around 75
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.
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.
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
this is what i was thinking too. at 13:22 the formula changes for "acceptable buy price" as well but i'm not sure if i'm missing something
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" :)
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.
What is the formula or what is the name of it, pls let me know, thanks
@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.
@@FakeSparrow-lu5ih research "discounted free cash flow (DCF)"
@@kegomania thanks
probably worth stress testing that growth rate, tapering everything you can is worth seeing what the model implies as value
AT 10:55 the buy/sell recommendation logic should be if the price of the share is less than acceptable buy price.
Finally someone whos not speculating/gambling
Investing is speculating to an extent. The bet is to assume the market will realize the value.
@@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
@@jle92708 🤣🤣🤣🤣🤣
@@jle92708LOL
@@sheldor73
Whenever I want a good laugh I turn to the stock market community, there is always a large group of court jesters to lighten the mood :)
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!
Very helpful, but the Buy/Sell formula should compare acceptable buy price to current price
the growth rate express in percentage should be computed as percentage, so the intrinsic value is only around 75
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.
This is a great video; thank you. However, I think there's an error calculating the Acceptable Buy Price using the Margin of Safety (MoS).
If a 65% MoS for AAPL is 252.26 (388.09 x 65%), which means we want more protection; then the Acceptable Buy Price = Intrinsic Value - MoS of 65% = 135.83 (388.09 - 252.26 = 135.83).
Let's say we would accept less MoS for AAPL, which means we are more confident about the company and accepting less protection. A 35% MoS is 135.83 (388.09 x 35%). So, the Acceptable Buy Price would be 252.26 (388.09 - 135.83 = 252.26). Therefore, a 35% MoS (low MoS) would result in a low Acceptable Buy Price (252.26), and a 65% MoS (high MoS) would result in a much, much lower Acceptable Buy Price (135.83).
In contrast, the video shows that a 65% MoS has an Acceptable Buy Price of 252.26.
Absolutely agree. I think too that Buy Price = Intrinsic Value - (Margin of Safety * Intrinsic Value)
Yes, the formula is off.
You are right.
Absolutely agree, thanks for pointing out
Thank you! I was wondering if I've made a mistake because it seemed off
Very good video to understand the Intrinsic value of a stock and other important points to keep in mind before buy/ sell of stocks
In the IF statement, the first parameter should be (current price < acceptable buy price)
not (acceptable buy price < intrinsic value).
Thank you.
Great Job!!!!
Thank you and very good luck with your channel. Keep up with sharing good content
Thank you for actually showing how to calculate it
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.
I’m glad this model helps! Don’t forget about the Dividend discount model as well!
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?
15:43 =IF(I30
Thank you, thought I was going mad
For UK users, prefix the ticker with LON: and divide current price by 100 (p)
Great step by step tutorial.
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.
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.
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?
Grahams gormula is fairly accurate, it’s just that 17% growth rate is a redicilous prediction.
How do you factor in stock splits? Assuming there hasn’t been any stock splits, wouldn’t the results be quite different?
Great video, even as a beginner to investing I was able to follow along!
Glad it was helpful!
Your calculator failed because AAPL stock has increased by 22%.
Need to calculate the value of the company's assets and cash versus its value in current shares
GREAT VIDEO! You earned a new subscriber, THANK YOU!! 👍
Interesting calculations, thanks for sharing
Very nicely explained. Thank you
You are a legend. Probably the most useful video I have seen in the last 5 years.
thank you!!
I use 1.5 growth and have a table based on the average of the top 10 stocks in that industry divided by 2.
Thanks for such a truthful video
Great explanation!
This formula is available to literally everybody. You can be more than sure it won’t be working for retail. Not a chance.
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".
Great thoughts. I agree!
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?
Thank you!
As for your question, I would have to look closer into that to find out.
I can thank you enough for this explanation. Thank so, so, so, so much!
You're very welcome!
Thank you for making coding so much simpler.
Glad it was helpful!
You sir, have lots of intrinsic value. This is perfect, thank you
Wow, thank you!
The best explanation of Intrinsic Value of a Stock!
Thank you!
Best explanation I’ve seen on CZcams so far. I probably will have to watch this a few times but I appreciate it.
Thank you!
Thanks for the formula it's very helpful, but how do you modify the buy sell rating to check that the acceptable buy price is above the current price?
Great work, thank You.
I wish this video explained what these terms mean and why they're relevant.
Do you have any back testing data on these models?
Really great video and well explained. 👍
Thank you so much for this video ❤️❤️
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
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...
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! 😄
I was thinking the same thing
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
Congratulations 👏 and all the best for your success and happiness ❤️
I should have learned this a long time ago, but I don’t recall call this in my 1969 Business management class. Good work!
Great Job! Simple explanations, easy to understand. Now I just have to evaluate 4000 stocks…😊
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.
@@vishwajeetpatel3872 how do i do this? is there a video explaining the proces?
Very helpful thank you. Where does the revised formula come from though?
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”.
Thank you so much for your information.
How do you suggest dealing with negative EPS or negative Growth? For example, currently BA and DOW.
Hi that’s was very helpful just one confusion I guess you have done a minor mistake in IF formula.
BEST VIDEO EVER, THANK YOU.
Thanks for sharing.
Goodness. Buffett literally, every time he is asked questions about calculations regarding intrinsic value, specifically says he doesn’t use spreadsheets and formulas.
Excellent video! Thank you so much.
Glad it was helpful!
Thank you, great tutorial,
Great video thanks man we’ll explain
I really enjoyed watching this video.
Excellent video! Thank you
Glad it helped!
Nice work. 1) Do you have a source for the revised model? 2) For high growth stocks like AAPL, it would be good to experiment with smaller growth rates (e.g. half? Some worst case historical rate) to see the impact of recessions
Apple is not high growth
@@saulpizarro4684 just answer the question
Rick will lose his money because he thinks he’s buying a little ticker symbol and that he can forecast “growth rates”.
Great content! 👌
If the Growth Rate is a percentage, shouldnt it be listed in decimals? i.e. 0.1793?
The video is misleading, but there are some who will believe it.
That threw me too. I need to read the book I guess. Another factor in the text?
What a great content that you've been made📈 Oh btw I have a question, how did you define the Margin of Safety?
Graham always said to have a Margin of Safety of at least 50%, but its completely up to you and your competence level.
Margin of Safety= safety net for people's own delusion
Well , you can Always adjust the Model to the Price you Look for….
Thank you for the instructional video. Very helpful. Is the growth rate coming from EPS, P/E or something else?
Academic formula for growth rate is retention ration * ROE ... Retention Ration is 1 - Dividend Yield
Excellent explanation!! Thanks
Glad it was helpful!
i think sir you are from india. pls sir gyuide me where to see indian curent yield aaa corporate bonds value .... kaha kon si website pe dekhe ki india ka current yield aaa corporate bonds ka value kya he bas sir itna guide kar do ... pls sir help me
Hi great video, just Quick question, why the growth rate (2g) in the formula not in the percentage ( 17.93%). Thanks
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?
This changes completely the valuation. I think it should be in %.
When I enter that formular for fetching the EPS, google spreedshet gives me the EPS as per the last available quarter, in my case 30 June 2023, and not the TTM. In your video, however, it seems to import the TTM EPS. What am I missing?
Valuable content
Thanks for sharing
My pleasure!
Question: Y value is easy to track for US Markets. How do we find Y value for non-US markets? TIA
Thanks
thanks
I'm confused, in your Graham's formula you added in the P/E as a multiplier after you input the EPS, which isn't a part of the basic formula ?
So if I project yields going up on AAA bonds then I have to adjust accordingly
amazing video.
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.
can you use the forward EPS instead because thats based on past quarters
Thanks for the info and research tools too.
You bet!
Is there an app that you recommend that will perform this function?
Very good video. Thanks!
Glad you liked it!
Great tutorial, thanks for sharing!
You’re welcome!
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
yeah in the same situation
What if we use fcf per share instead of eps?
wonderful!
Hi there!, you said in your last video that the "PE no growth" is 7 and "G" is 1, can you confirm these variables for 2023? thank you!
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
this seems like a good application in theory...but given the current market conditions of the past few years with aggressive shorting by hedge funds etc...don't you think outstanding shares/free float should also have an application into an acceptable buy/sell price?....given the more shares there are for a ticker, the harder it will be for the price to move and the more likely it will be attacked by shorts...just a thought i had come to mind
thanks. it's amazing
Y si el growth rate for next 5 years es negativo, que ocurre?
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.
Thank you for a great video. Being a complete newbie to this, does this work, if for example I am looking at a UK company and so put in a share price in GBP? Or do I need to convert this to dollars? Thanks
This is a “learning equation” so to say. The creator of this idea doesn’t actually use this equation, but rather he kind of uses it to show the kind of thought and reasoning that goes into the investments
It’s also like 75+ years old, the world of finance has changed a lot since then, although it’s definitely still a nice idea to mess around with I wouldn’t make any serious investments using it