Understanding Intrinsic Value

Every investment decision you will ever make rests on one question: is this asset worth more than I am being asked to pay for it? Answering that question requires understanding intrinsic value.

Why This Matters

Intrinsic value is the true economic worth of a business — the present value of all the cash it will generate for its owners over its remaining life. It is not the stock price. It is not the book value. It is not what analysts have written in their reports. It is the number you arrive at by thinking carefully about what the business will actually earn and at what rate those earnings should be discounted back to today. The gap between intrinsic value and market price is where every investment opportunity or threat lives.