Welcome to Intrinsic Value Investing

With the market gyrations that have occurred during and since the summer of 2007, my attention to individual stocks has re-awakened. I come to investing with a value investor bias: Ben Graham, Warren Buffett, Charlie Munger, Walter Schloss and his son, Bruce Greenwald, Mohnish Pabrai -- all the biggies, past and active today.

The main tenet of value investing has been neatly summed up by Buffett (probably quoting Graham): "Price is what you pay. Value is what you get."

Price is easy to find: check the latest quotes at any financial website. But estimating value is harder -- or at least sometimes it's harder (Buffett has described the 1974 undervaluation and his purchase of The Washington Post company as obvious to anyone who gave it a moment's thought -- the proverbial fat pitch).

There are many ways to estimate the instrinsic value, also known as the fair value, of a company. Professor Aswath Damodaran has written a few textbooks on the subject.

This blog focuses on only one method, one of the discounted cash flow (DCF) models known as "free cash flow to the firm" (FCFF). Even with this one method there are variations in approach. The most accessible approach to a non-professional is found at the www.valuepro.net website. That website explains the components of the approach. I won't repeat it here. Obviously, I recommend their website and the related book: Streetsmart Guide to Valuing a Stock.

Keeners like me can roll your own spreadsheet to implement their approach. For quick valuations, the online valuation tool at their website works well, though sometimes the data is a little old and needs to be updated on your own. That's what we'll be doing in this blog.