Professor John Price from Team Invest (no commercial affiliation) came from Sydney on Sunday 20 March and taught us several lessons on investing – finding good quality shares for our self managed super funds (SMSFs).
Valuing a company and it’s shares is often spoken by “gurus”, but what is it? When Warren Buffett, the world’s greatest investor said in the Berkshire Hathaway Owners Manual, “Intrinsic Value is the discounted value of cash that can be taken out of a business during it’s remaining life” – is he saying the discounted method is what he uses?
Professor Price explained that this is one of over 30 methods to value a company (most are explained fully in his book “The Conscious Investor – A Timeless Value Approach” see http://ow.ly/4p8R2) (no commission involved). He gave examples of several methods and the calculations, then showed one method, and using Woolworths as an example, current share price around $27 we can calculate from a book value of $6.15, with slightly different ROE (return on equity), an Intrinsic value from $10.12 to $188.45. So it’s over value for the first result, and well under valued for the second!
After over 15 years of research and investigation, Professor Price concludes that most valuation methods are “fluffy” for a word. What matters is the Intrinsic Value to YOU.
He gave an example where a loaf of bread to the seller is less valuable than the $2 it sells for, but the bread itself is more valuable to the buyer, enough that he is willing to part with $2 for the bread. And depending on how hungry the person is, the more valuable the bread is too. The bread has more value than the money. No transaction occurs unless there is a difference in the perceived value for both parties.
We look forward to having more teaching from Professor Price at our periodic share investing workshops, and look for more posts coming, on other lessons we learnt that meeting.
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