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Intrinsic Value

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updated 19 Jan 2023

In investing, intrinsic value refers to the inherent or true value of an investment, regardless of its market price. It is a concept that is widely used by value investors, such as Warren Buffett and Benjamin Graham, and is based on the idea that the market price of an investment may not always reflect its true value.

Intrinsic value is determined by analyzing a company's financials, such as its earnings, cash flow, and assets, and projecting its future growth and profitability. It is also determined by analyzing the company's industry and competition and by considering macroeconomic factors.

Once the intrinsic value of an investment has been determined, an investor can compare it to the current market price to determine if the investment is undervalued or overvalued. If the intrinsic value is higher than the market price, the investment is considered undervalued and may be a good candidate for purchase. If the intrinsic value is lower than the market price, the investment is considered overvalued and may be a poor investment.

Intrinsic value is a difficult concept to measure and is often a matter of judgment. Different investors may arrive at different intrinsic values for the same investment, and the intrinsic value of an investment can change over time as new information becomes available.

In summary, intrinsic value is the inherent or true value of an investment, regardless of its market price, it's a concept widely used by value investors, it's determined by analyzing a company's financials, future growth and profitability, industry and competition, and macroeconomic factors, it's often a matter of judgment and different investors may arrive at different intrinsic values for the same investment.

Other Resources

How to Calculate Intrinsic Value: Full Example