What is Intrinsic Value

 What is Intrinsic Value?

At Moat in You, we believe that understanding intrinsic value is the foundation of smart investing.

Intrinsic Value is the true worth of a business or asset based on its fundamentals — not just the stock market price it's trading at today.

Think of it like this: imagine you're buying a second-hand car. The seller wants ₹5 lakhs, but after checking the mileage, service history, and comparing similar models, you conclude it’s really worth ₹4 lakhs. That ₹4 lakhs is the intrinsic value. If you buy it for ₹3.5 lakhs, you’ve made a great deal.

💡 The same principle applies to stocks. You're evaluating what a company is really worth — regardless of short-term market noise.

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📚 Wisdom from the Masters

🔹 Benjamin Graham – The Father of Value Investing
In The Intelligent Investor, Graham wrote:

“Price is what you pay. Value is what you get.”

He introduced the idea of the margin of safety — buying stocks below their intrinsic value to minimize risk. For instance, if a stock is worth ₹100, aim to buy it around ₹70–₹80.

🔹 Warren Buffett – Graham’s legendary disciple
Buffett added a quality lens to Graham’s formula:

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

He looks for:

• Consistent earnings

• Strong management

• Durable competitive advantage (moat)

Buffett calculates intrinsic value using future cash flows through models like Discounted Cash Flow (DCF), and only invests if there’s a margin of safety.

📊 How Do You Calculate Intrinsic Value?

Think of a company as a money machine. You estimate:

• How much future cash it will generate

• Then bring those cash flows to today’s value using a discount rate

📌 Key Tools:

• Discounted Cash Flow (DCF) Click Here

• Earnings multiples (P/E, P/B)

• Dividend Discount Models (DDM)

 Real-Life Indian Examples 

✅ Infosys (Early 2000s)
In 2003, Infosys was undervalued due to a temporary tech slowdown. Long-term investors who recognized its strong margins, global scale, and cash reserves made huge gains over 10–15 years.

✅ Coal India (2021–2022)
Coal India traded at a low P/E with high dividends. Smart investors calculated its intrinsic value based on cash flows, future coal demand, and dividend yield — and doubled their returns.

Global Examples

✅ Apple (2008–2009)
During the global financial crisis, Apple was trading below intrinsic value. With its brand strength and innovation edge, Buffett saw the margin of safety and made it Berkshire Hathaway’s largest position.

✅ Amazon (Late 2000s)
Though Amazon looked expensive, long-term investors saw its cash-generating potential (AWS + global e-commerce). The intrinsic value was well above the market price.

 💡 Why Intrinsic Value Matters – Moat in You Lens:

• Long-Term Thinking: Focuses on a company’s 5–10 year future, not daily stock swings.

• Rational Investing: Keeps you grounded when markets are greedy or fearful.

• Margin of Safety: Provides a cushion if your assumptions are slightly off.

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  Buffett’s 4-Filter Approach to Intrinsic Value Investing:

1. Understandable Business (Circle of Competence)

2. Durable Competitive Advantage (Moat)

3. Able and Honest Management

4. Attractive Price vs Intrinsic Value

  💬 In Simple Terms…

“Intrinsic value is like checking the true strength of a tree — not how many leaves it has today, but how deep the roots go, how much fruit it can bear, and how strong it stands during a storm.” 

 📌 Moat in You Final Tips for Investors:

• Go beyond stock price. Ask: Is this company fundamentally worth its current valuation?

• Be patient. Value unfolds over time.

• Combine quality + reasonable price as your filter.

• Don’t be swayed by hype or fear. Stick to your valuation thesis.

Moat in You takeaway:
Learning to assess intrinsic value is your first step to becoming a confident, long-term investor. It’s not about buying cheap — it’s about buying worthwhile businesses at worth-it prices.