A big but brilliant topic Gromit, worthy of a thesis but I will make just a few brief points:

·         Intrinsic Value (IV) is the present value of all future cashflows of a company.  Sadly these are unknown so the IV is only as good as your assumptions -  so never forget that an IV calculation is NEVER accurate… but it is invaluable in forming an opinion on value.

·         The other valuation methods you mention (book value, ratios, etc) are pricing methods not valuation methods.  Watch videos by Aswath Damodaran (https://www.youtube.com/watch?v=Z5chrxMuBoo) and read articles in his blog (http://aswathdamodaran.blogspot.com/) to learn more.

·         The most important information someone includes when they post a valuation on Strawman is the assumptions they made to get to the value.  Unless you agree with them all then you don’t agree with the valuation.  The assumptions also provide addition information relevant to forming your own valuation.

·         IV via DCF is probably best used to understand the assumptions that go into the current share price.  A way of reverse engineering the current price to see if you agree with it.  If you don’t then you may find undervalued opportunities.

·         Margin of safety come from the assumptions you build into your IV.  You may have a bull and bear case to help understand the impact of them and if the price is at or below your bear case then you have a margin of safety.

·         Valuation DCF can be done different ways, but the terminal value assumptions are probably the most important part because it forms most of the value.  Hence your future view of the company at 5, 10 20 years (or when every you see growth stabilising – terminal point) is most important and as a long-term investor should be your focus.  You get your edge on the market by having a better insight to the value of a company by looking a long way out into the future. 

·         High growth (often unprofitable) companies are hardest to value but provide the greatest opportunity to find undervaluation.  They are volatile because value is so hard to assess, but if you look through the NOISE of the market and hype and have a well-formed view on the long term prospects of the company then you will find many hidden gems.

I am using Strawman to publish my valuations in detail and improve my valuation approach.  It forces me to put the extra work in on a valuation because it is published rather than cut corners and ignore gaps in my logic or methodology.  I hope you will do the same and we can learn from you.

Regarding discount rates you asked about (bond yield issue) – I use 9-11% based on risk as a general rule.  Aswath Damodaran has a blog on it and calculates current market risk premium of around 5% to add to 2% for 10 year bond yield, so current general market discount rates are about 7%.  However, I look to a market average discount rate which is closer to 10% as a long-term average – a personal preference like most things in IV’s. Each to their own.

The Discount method appears in terms of Discount cash flow - DCF method seems popular so far. Along with reference to the year on year change to book value It all make reference to the ways we as investors create our own personal self determined margin of saftey. I wonder If we get a change in bond yeild or if those using this method and how contributors have calculated into this the effect of rising intrest rate and how this will effect their valuations of IV. With the topic of a high pe for companys and the inflexion point of a company as its going into profitability I have brought shares and sold at a profit some companys like this megaport and starpharma come to mind I still hold starpharma as beleive it may soon have enough profits to start generating cash flow soon. But these are limited buys in my portfolio as I find it hard going to buy companys that have a pe in multipiles that mean under current eps would take many many years to pay back because the company is not making any profit. Furthermore i feel and suspect a return at some point to a higher intrest rates environment may come at some point and the money that people have withdrawn from bank accounts and fiscal methods would either cause a greater swing and correction in price to stocks in general which would require us all as investors to revist the intrinsic value that we calculated for the companys we hold. And thus make cuts accordingly to the value we placed on the buisness in a more dramatic fashion which in turn could prove a buying oportunity for those with the patience to wait thus currently Im avoiding or trying my best to avoid companys with high pe ratios. It is such a vast area to get my head around and is intresting thanks for sharing so far everyone thats contributed great reading and heaps of food for thought so far. I hope that which ever method you are personally using it is working out for you over the long run.

I joined strawman a week or so ago as have been fairly alone in my thinking on the share market and sought out others to contribute and share with. Something I have been trying to understand is intrinsic value. To understand a stocks intrinsic value is what as investors seek to do. To know if we are buying a company below its market value. There are though many ways to formulate or come up with a companys intrinsic value . As a group we all use different methods to formulate our ratios facts and figures. I feel that many investors dont appreciate the variety in which we can come up with our valuations. Hence this is why I have joined strawman to decipher and read how others come up with the intrinsic value of the shares they are intrested in purchasing or selling.For me intrinsic value is the true value of a stock based on the financial information and forcasts that we have as investors at our disposal to value a buisness. The first stumbling block I have faced as an investor is information overload The recent forum discussion on brokers valuations vs ones own valuation typifys for me a tip of a larger ice berg. Intrinsic value is based on that our valuations will be met at some point on the open market. The stock will move towards its intrinsic value. Hence my need for understanding and looking at the various ways intrinsic value is formulated could you please share in a basic easy to understand manner the ways in which you attain your intrinsic value. To make this easier I will include a list in some of the popular ways this is done But please if you can further expand describe and share your valuation methods I think we coukd all benefit from the collactive knowledge of the strawman community. 1 Ballance sheet Methods including book value liquidation value and net assett values. 2 Discount methods includiing discount cashflow,dividend, roe / payout ratios, income valuations and abnormal earnings. 3Payback methods Earnings Buyback and Dividend payback 4 Index methods Peg and Pegy 5 Expected returns Dividend Margin of saftey and Ben Grahams formulars.6 Any methods you personally use and have adapted. Lastly I am drawn to Haggerstorm explantion of Buffetts tenants However I would like to expand my knowledge as an investor of the what is the intrinsic value of a buisness and can the company be purchased at a significant discount to its intrinsic value and thus with a margin of saftey. Please if you can share your methods that you use so that I can learn from the collective knowledge of the strawman community to help me grow in my understanding of Intrinsic value I would greatly appreciate your input Kind Regards Gromit