hello Tom, Please could you explain where you obtained the 15%(percent) minimum rate of return? where and how did you come to this figure? your reply would be greatly appreciated
I appreciate your approach to teaching.. To my understanding this just proves how much we need an edge as investors because playing the market like everyone else just isn’t good enough, we just need to hold onto our hopes and wait to see how things turn out because market movements are almost always unpredictable. In my portfolio, I'm noticing more red than green.
I did a valuation of Dell today and it came out at $34.35 meanwhile Dell is trading at $81.07 either I made a massive calculation error or it's overvalued by over 2x
@@JosephDickson This is normal in the current environment. If you do a stock valuation for Tesla you will be mindblown at how overvalued the stock is. A lot of people invest in stocks for dumb reasons. "I like this product" or "This is the next big thing" are common reasons people invest and very few investors dive into financials. You also have to take into account competitive advantages some companies may benefit from that artificially inflate their value, like government interventions which benefit certain companies and cripple competitors.
@@JosephDickson The math doesn’t seem to make sense. It’s basically saying that if growth rate is greater than expected rate of return multiplied by your margin of safety, then the stock will be overvalued. In this case 12% > 15% * 50% or 12% > 7.5%, thus stock overvalued. So in this video it makes it seem that growth rate = to your expected rate of return, which is an incorrect way to valuate a company. You don’t need P/E. That just throws every one off. Here’s a quick check of the formula: Compound Formula: FV = p(1+i/100)^n FV = Future Value of EPS P = Present Value of EPS i = interest rate g = growth rate n = number of years We’re using 9 years since year 1 to year 10 is 9 years not 10 years from now, not 10 from now. FV = p(1+g/100)^9 FV = 11.89 (1 + 12/100)^9 FV = 11.89 (1.12)^9 FV = $32.97 Now we do the reverse with interest rate of 15% to calculate starting EPS or p: FV = p(1+i/100)^n FV / (1+i/100)^n = p P = 32.97 / (1.15)^9 P= $9.37 Multiply $9.37 by the P/E and you get $145 So P/E has absolutely no relevance in this formula. So he’s simply using compound interest formula and comparing the Growth rate with your expected rate of return. Makes no sense. That’s not how you valuate a company. Otherwise, we’d only be looking at EPS. Hope this sheds some light :)
This is financial advice and I never give financial advice: DONT LEAVE DURING THE BEAR. If you don’t want to invest…learn. If you don’t want to learn…build. If you don’t want to build observe. DO SOMETHING…other than leave. There is so much opportunity here. Take advantage!
Very true, I started investing before the pandemic and that same year I pulled a profit of about $750k with no prior investing experience, basically all I was doing was seeking guidance from *ROCHELLE DUNGCA-SCHREIBER* who's a guru in the game, you can be passively involved with the aid of a professional.
It took me 3 years to stop trying to predict what's about to happen in the market based on charts studying because you never know. Please, i need the help of your Investment advisor.
As I would see it, the go to solution for climate this downturn and high expansion is momentary exchanging, rather than long haul exchanging, most people utilizing these methods are netting a lot of gains, sure the dangers are higher yet once more isn't the ongoing business sector similarly as unsafe?.
Since the outbreak of 2020, which had a significant impact on the market, I've been running all of my investment decisions through an investment coach because their entire philosophy is centered around using a high-profit oriented blueprint while simultaneously going long and short, as well as reducing risk exposure as a hedge against inevitable downtrends. Underperforming is almost impossible when combined with their access to strange data and analysis.
@@helenoliver4838 I suppose that's why, according to investopedia, demand for investing advisors has increased by nearly 41.8% since the epidemic. Regardless, kindly refer the advisor who helped you.
@@mariahhayes5089 I thoroughly recommend 'MARTHA ALONSO HARA", an investment advisor who is subject to US SEC regulation. She has assisted me with my portfolio for many years. Look her up online; she's a well-known figure.
At the very least, I now grasp the concept of leverage. Creating wealth and financial freedom isn't as tough as many people believe. Building wealth and remaining financially stable indefinitely is a lot easier with the appropriate information. Participating in financial programs and products is the only true approach to make a high income and remain affluent indefinitely.
Most people simply enter the foreign exchange market without comprehending matters like this. The first stage in building money is determining your goals and risk tolerance, which you may do on your own or with the assistance of a financial counselor who works with a verified Finance agency. And also you can learn the facts about saving and investing and create a clear plan, you should be able to acquire financial security over time and enjoy the benefits of income management.
That is the reason I work with John Desmond Heppolette, who introduced me to a better Financial community, a verified agency where I learned how money works and how to create it, as well as free books, courses, and daily lectures. You also get to meet new people, which was the best decision I ever made.
I've been making more than six figures passively investing with John Desmond Heppolette, who showed me the right community to join and grow mv finances and I don't have to do much work. It doesn't matter if the market is crashing, I will always make returns.
Indeed he really seem to know this stuff. I found his online-page when made a google search of his full names, read through his resume, educational background, qualifications and it was really impressive. I left him a note and booked a call session with him..
Yeah real, that guy is one asset manager that gives the breakdown of everything on how things are done, joining an effective financial community can be 100% beneficial when joined properly that's all I can say out of experience
This is why Buffet tells us that you don't have be really smart, just very patient. Very good video! Thank you for creating this in a step-by-step process. Most investors know to buy under value, but it's getting the intrinsic value is part of the critical key in knowing when to buy.
I commented on this video around 8 months ago and said it’s impossible to get good stocks with this evaluation. After the recent events I’d like to say i was dead wrong and i am using this formula from here on out. Thank you for your work.
I like investing in close-end funds that pay monthly dividends. The trick is to hold long term and reinvest the monthly dividends plus buy more shares on a monthly basis or when ever you can afford to. This can be easily done because close-end funds are bought and sold on the stock market just like regular stock. That’d be enough to create a portfolio that would pay you between $50k to $70k in dividend income
I completely agree; I am 60 years old, recently retired, and have approximately $1,250,000 in external retirement funds. I am debt free and have very little money in retirement funds compared to the total value of my portfolio over the past three years. To be honest, having a portfolio-advisor for investing is genius!
The name of my investment advisor is "Lisa Angelique Abel." She is a true genius when it comes to diversified portfolios, which make portfolios less susceptible to market downturns, and has a strong reputation in her area. You may already be familiar with her name; a Newsweek article gave me the information I needed. She is someone you could Google.
@@LUNGHIX zanima preko kojeg brokerskog društva ulažeš, gdje su najmanje naknade,? tek sam krenuo ulagat i nisu veliki novci, ali su naknade dosta velike. inace idem preko erste banke. HHvala ako ikako mozete pomoc.
Hi Tom, Thank you for keeping it so simple I finally got the discounting math part and Im so happy thanks to you. I can tell you are going to go pretty far!
Amazing ! Simply not overly complicated and easy to understand, no courses being offered just straight value ,,,,u sir are the hero we all need in this get rich quick market !
Finally someone who knows what they’re talking about, as a fellow finance person I really appreciate you showing people the real deal, instead of those fake gurus who I’m not entirely sure if they’ve ever studied finance at all. Great video!
There's NOTHING MORE IMPORTANT when investing than being able to calculate intrinsic value, knowing if a security is trading at a discount to that value at the moment, and knowing your margin of safety/maximum buy price. Keep in mind, valuation IS AN ART. It's not all science and math. So you have to give yourself some wiggle room, and the price of securities is always subject to buyer sentiment. Good video!
I used to think every investor went broke during recessions, meanwhile some make millions. I also thought everybody went out of business during the Great Depression, but some went into business. Bottom line, there's always depression for some, and profit for others, it all starts from having the right mindset. That said, I've set asides $150k to invest for future, unfortunately l'm a complete noob.
True, A lot of folks downplay the role of professionals until being burnt by their own emotions. I remember couple summers back, after my lengthy divorce, I needed a good boost to help my business stay afloat, hence I researched for license advisors and came across someone of due diligence, helped a lot to grow my reserve notwithstanding inflation, from $275k to approx. $850k so far.
Can't divulge much, it's only right you do your due diligence. I'm been guided by Olivia Maria Lucas and most likely, the internet is where to find her deets.
Thank you for this tip. It was easy to find your coach. Did my due diligence on her before scheduling a phone call with her. She seems proficient considering her résumé.
Hi Tom, randomly fallen on your video looking for a clear explanation of Phil Town's Rule 1 method of intrinsic value and so far I admit you made the clearest and smoother explanation about it. Thanks again for your insight!
This is really amazing, however, can you please tell me how to apply this in case if a company EPS is in negative as. As I am stuck in one of the stock & wanted to exit the position but wanted to do the quick analysis for deriving the future stock value. So that I can decide whether to hold that stock or sell it.
I'd rather estimate the Enterprise Value (EV) and then derive the fair share price value from there. Equity value = EV - net interest-bearing debt, and to get to the fair equity value per share (i.e. "future stock value") you divide by shares outstanding. The question is then, how to estimate EV? You could check the industry's multiples, such as EV/EBIT or EV/EBITDA, or you could do a DCF analysis based on expected free cash flow generation in the future.
I think for a negative EPS you wouldn't have a p/E ratio, you could use the price to book ratio. But yeah what value would you put into EPS would probably be what you project yourself. Maybe just use some best case EPS you find online (i.e whenever it comes to positive)
I feel like I've seen all the intrinsic value calc videos out there by now (!) and this is by far the best and best explained. So grateful for your efforts. Thank you thank you thank you :) Will definitely subscribe.
Hey Tom. Great video! Thanks for making this extremely easy to follow. Quick question for you - Is there any reason we do not use the current P/E Ratio listed on the day of our valuation? In your method you either use double the current price per share or the average. Does your method provide a more accurate intrinsic value figure?
Thanks for simplifying it, the trouble with calculating intrinsic value is it’s a very subjective exercise. Investor should prepare their portfolio for 2021, as the stock market enters the final stretch of the year, it's worth looking back on your portfolio to consider what's still working and which strategies are at risk of falling behind.
Investors seeking to reposition their portfolio should consider ABBV, BKR, CF, COLB, KIM My best value stock this past months are BPYU, NRG, ARD, NLOK, EAF.
@@kumarvenkatesh6600 Don’t judge a stock by its share price, entering and exiting a trade at the right moment requires patienc. And most importantly ensure you thoroughly carry out research on company and make common-sense decisions before buying stocks.
Thank you for your help! I just did a valuation of Apple using this method today (5-24-22) and got to a margin of safety price of $36. The last time it was at that price was December 2018. Buffet, with his analysis, saw a buy at $150/share. Even if we didn't use a margin of safety, the current value price would be $73. It may take years (if ever) for Apple to get back to that price. And if it did, it would seem that Apple would be in some serious trouble. If investing for the long term, when can you say, "that price is good ENOUGH"?
I followed this technique and invested when the pandemic started in April 2020 and wow... gone on to make some serious money! Thanks for the video Tom!
Thank you for your videos. This is great. Quick clarification question- why would you use the lower P/E number if you are value investing? Wouldn't it make more sense to use a higher P/E to be conservative on the investment?
Thank you for the insightful video. I'm 27 and I just started investing, I would like to know more about compounding interest in investing. I believe it's an essential concept to understand for long-term financial success.
I'm a noob too but I believe a stock like that would be considered a "growth stock" and valued differently. If I understood this correctly, this is used for "value stocks". There are different categories for that reason... I think 🤔
Hi, I'm new to investing and have a quick question. Why do you multiply the 10 year number by the P/E ratio? Aren't large PE ratios and indicator of an overvalued company?
Thanks for the amazing video. I'm 23 and just started investing. l'd like to learn more about compounding interest in investing. I believe it's an essential concept to understand for long-term financial success.
Hi! Good video. However, what I see is that in your model it is useless to calculate the EPS along the 10 years, as you just take the current EPS and multiply by current P/E ratio, and you get the actual price of the stock. What the real "intrinsic value" of company is, is the total growth difference of EPS within the next 10 years, which you then can subdivide into growth of your book value and the total amount of dividends. It makes also more sense, as this is the maximal price which you should be willing to pay, because it equals to 10 years growth of EPS. And therefore, you should not buy something over this price, as you would make a loss. More advanced models apply also a discounted rate. So, every year the particular annual EPS is devaluated by the discounted annual factor of 1/(1+p)^y, where p is the interest rate (should be at least higher than the devaluation rate of the currency) and y is the particular passed year. For normal long term value investing I am using 2%, and for more aggressive investing I am going until max. 10% pa. Because, the money you are getting in 10 years has a way less value to you than money, you will receive within the first 5 years.
Heyy I'm actually trying to understand investing for the very first time, and I would appreciate if you could tell me where you learnt this from so I could learn it there too 😭
In such times as this, you’ve got to make sure you consider having a diverse investment strategy. Your portfolio should have exposure to different areas of the market, including small or large-caps of ETF index, international stocks, grade bonds and alternatives like currency market (forex & digital-ledger) as this will help manage the overall risk on your portfolio
Probably Dave has more investments and savings. But you’re right, putting all your income into one place is also risky. Diversifying is the best option right now
In the meantime this is presenting an insane opportunity for new investors or those sitting with cash waiting. To set themselves up in a good spot. Even investing in TSLA, bitcoins the volatility market at the moment.
You are well enlightened Dave I didn’t think of trading this way, now I understand perfectly that it is advantageous and helps contain the risk of losing all your money
best video on calculating Intrinsic value in my opinion....simple yet effective, thank you..... this helped a lot with buying decisions..... thumbs up!
...or in a much easier way of getting the same answer: it is growing at 12% but you want a 15% return, so multiply the current price by (12/15). It is simple and gives you the same answer without the work. Current price of $181.25 * (12%/15%) = $145.
Correct me if I'm wrong, but isn't your method too oversimplified? Tom's calculation takes into account EPS ttm which is important when determining intrinsic value as EPS ttm can be in the negative (more spending than income).
I used this formula to calculate buying Amazon today with a 50% margin of safety, and the result says if you can buy Amazon for less than $2,819.15 you'd be getting it a huge discount. I used the same numbers you used, the margin of safety 50% and minimum rate of return 15%. For the growth rate I put 34 and for the P/E ratio, I put double the growth rate which is 68. You'd think Amazon, as expensive as it is that it's overpriced, but according to this calculation even at $2,401 that it's at today, it's actually undervalued!
Thanks for the video. I've been reading Phil's books, and this was helpful. Can you share about how you locked in the cell and dragged the equations through the row, or can you share a good resource for these type of excel issues? Thanks again.
senno52 you can either manually type the $ signs or press F4 to lock a figure in. That just means that the cell used in the formula won’t change when you drag, but it will for anything that’s not locked in
@@MrMadmaggot No the result should be higher than the current price for it to be a buy. Using a 50% margin of safety we would want the result to be 2x more than the current price.
Thanks for that! Very helpful. Does this formula still apply in 2022? According to your calculation Apple should be bought below $40 as of today which seem crazy for the stock to drop that low
Never forget to compare the value of Apple stocks when Warren buffet actually purchased the stocks Vs their value now. For the quick of mind: if Berkshire has it in portfolio today doesn:t mean they would buy it at today's value
I did this on multiple top stocks yesterday that I’ve been following (including Apple) and it basically said every stock is incredibly overpriced/overvalued right now and I shouldn’t buy... Still thank you for the evaluation tool!
Try oracle and let me know what you think. I got 81.06 to buy on the sheet i think oracle is around 61 dollars. Im sure that means a buy but not quite sure to press the buy button.
Wakamz the very long term growth of the market has been around 7-8% and the long term average P/E of the market has been 15 (around double the growth). We want to figure out what we could sell the business for in a good market so will use an average (or even higher end) historic P/E for the company. Often we’re buying into companies when some sort of event has sent the share price way down in the short term, so the current P/E wouldn’t be a fair estimate of a future multiple. Hope that helps 🙂
Ah! The good old value investment. Gone are these days at least for the near short term. Everything is inflated right now and P/E and fundamentals are thrown in the garbage.
Its because interest rates are so low. 10 year US gov bond rate is less than 1%. People are pumping money into anything that can give them a higher return.
that was amazing - thank you. Do you have time elect a stock valuation model to analyze a stock and make a recommendation? I was thinking of Amazon and how it's operating in today's market (giving the pandemic).....
Tom, I am sure that there are many other viewers note that the forecast MOS buy price from this calculation looks to be very low and unrealistic for some companies as shares prices have not been this low in 10 years. One point that I make, using the TTM EPS is a snap shot in time and may contain limited view (in light of the recent pull back). Would an average EPS for prior 5 years be more realistic?
Bro, this is an amazing video. I used to use Phil Towns calculators but yours example is amazing. Only thing I can't understand how to find Growth Rate if not to look in yahoo, there was some sort of formula also how to get it correctly, and than you choose which of to is lower, the one you got or the one in yahoo...
@@InvestingwithTom Hey mate - i just tried this with Amazon, just outta curiosity and when I put in the growth (86%) everything went a little awol and just got ##### signs everywhere. Why would that be, do you know? Thanks
djpaulhannon haha yeah. I think the numbers probably got so big you can’t see them. Just make the columns a bit wider and you’ll see the figures. Keep in mind that’s an average growth rate of the next 10 years, so 80+% a year for a decade just won’t happen
Keep in mind that this valuation is a raw example. If the stock is paying divs, you have to consider that in your calculation as well. Lastly, companies growth rate tends to slow down in time, so you might want to take say 7-8% instead of 12 in the last couple of years of your projection
good luck waiting until apple comes down to $155 share....It ain't gonna happen. I've used Phil's calculations during this crisis of 40-50% reversal on numerous stocks...ALL are overvalued and one 1 out of 50 might fit the criteria of buying @ .50 cents on the dollar. Sit on the sidelines with worthless cash and watch everyone else make money. No thanks. Find a fair price and go in.
Thats usually just the trailing 12 month PE ratio. You want to consider the P/E ratio range that Apple can trade between and take the average. 2x Growth rate is surprisingly accurate.
Great vid! & shares spreadsheets for no cost - top bloke! How would u calculate a negative/ up & coming company. It would be great if u did a vid on this. Thank u
Does this stock valuation take into account the time value of money? I know for other forms of intrinsic valuation, like DCF for example, discount earnings or cash flows to the present because money in the future is worth less than today. I honestly might be missing something, but if this method does not include some sort of discounting, wouldn't that pose a problem regarding the accuracy of the intrinsic value result? I'm sort of new to this stuff so I might just be thinking too hard lol.
It would. This formula doesn’t take into account inflation or opportunity cost of having money locked in, however, I still think it represents a good place to start.
@@Akshay_3099 not discounted cash flow though. This is whole sheet works to calculate the net present value of the stock (after margin of safety, assuming the minimum return). None of these values are cash flows, just earnings per share and stock price.
under the caveat that you want a 15% then I think so. If you are comfortable with a lower minimum return it might've been fairly valued or even cheap. Apple also has around $20 or so in cash per share you'd effectively own too, which you could add back in. Thanks for watching :)
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Despite the economic crisis, I still thank you 🙏 for the level-headed financial advice. I started stock and crypto investment with $4,345 and since following you for few weeks now, I’ve gotten $12,539 in my portfolio Thanks so much Mrs Harriet Litz
Watch an updated Apple valuation here!
ruclips.net/video/cI8ZSf0nkFs/видео.html
please how did you do the excel thing in minute 8:27 when you pull the formula and it gets applied on the rest of the cells ?? please
@@ahmedlemhar move your mouse pointer to the bottom right corner of that cell, your mouse pointer will become a "+", then just click and drag it
hello Tom, Please could you explain where you obtained the 15%(percent) minimum rate of return? where and how did you come to this figure? your reply would be greatly appreciated
JSB Management copies straight from Phil Town’s books 🙂
@@ericchow2024 Thank you so much Eric :)
I appreciate your approach to teaching.. To my understanding this just proves how much we need an edge as investors because playing the market like everyone else just isn’t good enough, we just need to hold onto our hopes and wait to see how things turn out because market movements are almost always unpredictable. In my portfolio, I'm noticing more red than green.
Wow; everyone just talks about valuation but that’s where they stop; you took it all the way. Great job! Thanks for educating me/us
Isn't the EPS of 11.89 shown in the video too high?
Right now its 3.28 what's up with that?
@@landro3552 The Apple stock was split on a 4-for-1 basis on August 28, 2020.
I did a valuation of Dell today and it came out at $34.35 meanwhile Dell is trading at $81.07 either I made a massive calculation error or it's overvalued by over 2x
@@JosephDickson This is normal in the current environment. If you do a stock valuation for Tesla you will be mindblown at how overvalued the stock is. A lot of people invest in stocks for dumb reasons. "I like this product" or "This is the next big thing" are common reasons people invest and very few investors dive into financials. You also have to take into account competitive advantages some companies may benefit from that artificially inflate their value, like government interventions which benefit certain companies and cripple competitors.
@@JosephDickson The math doesn’t seem to make sense. It’s basically saying that if growth rate is greater than expected rate of return multiplied by your margin of safety, then the stock will be overvalued. In this case 12% > 15% * 50% or 12% > 7.5%, thus stock overvalued. So in this video it makes it seem that growth rate = to your expected rate of return, which is an incorrect way to valuate a company. You don’t need P/E. That just throws every one off. Here’s a quick check of the formula:
Compound Formula: FV = p(1+i/100)^n
FV = Future Value of EPS
P = Present Value of EPS
i = interest rate
g = growth rate
n = number of years
We’re using 9 years since year 1 to year 10 is 9 years not 10 years from now, not 10 from now.
FV = p(1+g/100)^9
FV = 11.89 (1 + 12/100)^9
FV = 11.89 (1.12)^9
FV = $32.97
Now we do the reverse with interest rate of 15% to calculate starting EPS or p:
FV = p(1+i/100)^n
FV / (1+i/100)^n = p
P = 32.97 / (1.15)^9
P= $9.37
Multiply $9.37 by the P/E and you get $145
So P/E has absolutely no relevance in this formula. So he’s simply using compound interest formula and comparing the Growth rate with your expected rate of return. Makes no sense. That’s not how you valuate a company. Otherwise, we’d only be looking at EPS. Hope this sheds some light :)
This is financial advice and I never give financial advice: DONT LEAVE DURING THE BEAR. If you don’t want to invest…learn. If you don’t want to learn…build. If you don’t want to build observe. DO SOMETHING…other than leave. There is so much opportunity here. Take advantage!
Very true, I started investing before the pandemic and that same year I pulled a profit of about $750k with no prior investing experience, basically all I was doing was seeking guidance from *ROCHELLE DUNGCA-SCHREIBER* who's a guru in the game, you can be passively involved with the aid of a professional.
It took me 3 years to stop trying to predict what's about to happen in the market based on charts studying because you never know. Please, i need the help of your Investment advisor.
God bless you for sharing!
As I would see it, the go to solution for climate this downturn and high expansion is momentary exchanging, rather than long haul exchanging, most people utilizing these methods are netting a lot of gains, sure the dangers are higher yet once more isn't the ongoing business sector similarly as unsafe?.
Since the outbreak of 2020, which had a significant impact on the market, I've been running all of my investment decisions through an investment coach because their entire philosophy is centered around using a high-profit oriented blueprint while simultaneously going long and short, as well as reducing risk exposure as a hedge against inevitable downtrends. Underperforming is almost impossible when combined with their access to strange data and analysis.
@@helenoliver4838 I suppose that's why, according to investopedia, demand for investing advisors has increased by nearly 41.8% since the epidemic. Regardless, kindly refer the advisor who helped you.
@@mariahhayes5089 I thoroughly recommend 'MARTHA ALONSO HARA", an investment advisor who is subject to US SEC regulation. She has assisted me with my portfolio for many years. Look her up online; she's a well-known figure.
@@helenoliver4838 I just searched for MARTHA ALONSO HARA online, I discovered her webpage, which was really impressive, thank you for this.
At the very least, I now grasp the concept of leverage. Creating wealth and financial freedom isn't as tough as many people believe. Building wealth and remaining financially stable indefinitely is a lot easier with the appropriate information. Participating in financial programs and products is the only true approach to make a high income and remain affluent indefinitely.
Most people simply enter the foreign exchange market without comprehending matters like this. The first stage in building money is determining your goals and risk tolerance, which you may do on your own or with the assistance of a financial counselor who works with a verified Finance agency. And also you can learn the facts about saving and investing and create a clear plan, you should be able to acquire financial security over time and enjoy the benefits of income management.
That is the reason I work with John Desmond Heppolette, who introduced me to a better Financial community, a verified agency where I learned how money works and how to create it, as well as free books, courses, and daily lectures. You also get to meet new people, which was the best decision I ever made.
I've been making more than six figures passively investing with John Desmond Heppolette, who showed me the right community to join and grow mv finances and I don't have to do much work. It doesn't matter if the market is crashing, I will always make returns.
Indeed he really seem to know this stuff. I found his online-page when made a google search of his full names, read through his resume, educational background, qualifications and it was really impressive. I left him a note and booked a call session with him..
Yeah real, that guy is one asset manager that gives the breakdown of everything on how things are done, joining an effective financial community can be 100% beneficial when joined properly that's all I can say out of experience
This is why Buffet tells us that you don't have be really smart, just very patient. Very good video! Thank you for creating this in a step-by-step process. Most investors know to buy under value, but it's getting the intrinsic value is part of the critical key in knowing when to buy.
Thank you for your breakdown and not requiring people to download a spreadsheet. I wanted the math and you provided it. Thank you, I appreciate you.
I commented on this video around 8 months ago and said it’s impossible to get good stocks with this evaluation. After the recent events I’d like to say i was dead wrong and i am using this formula from here on out. Thank you for your work.
It works great if you are willing to stay out of the market for 10 years at a time.
Update @logan cheek
@@uztrtrwhu3678 The update is OP is down on his investments lmao
@@darthrex6267 what does that mean, i forgot what the video is about
@@darthrex6267 o now i get it, update @logan cheek
I like investing in close-end funds that pay monthly dividends. The trick is to hold long term and reinvest the monthly dividends plus buy more shares on a monthly basis or when ever you can afford to. This can be easily done because close-end funds are bought and sold on the stock market just like regular stock. That’d be enough to create a portfolio that would pay you between $50k to $70k in dividend income
I completely agree; I am 60 years old, recently retired, and have approximately $1,250,000 in external retirement funds. I am debt free and have very little money in retirement funds compared to the total value of my portfolio over the past three years. To be honest, having a portfolio-advisor for investing is genius!
The name of my investment advisor is "Lisa Angelique Abel." She is a true genius when it comes to diversified portfolios, which make portfolios less susceptible to market downturns, and has a strong reputation in her area. You may already be familiar with her name; a Newsweek article gave me the information I needed. She is someone you could Google.
This is first time that I find really one useful youtube channel. Great!
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Hi Tom, Thank you for keeping it so simple I finally got the discounting math part and Im so happy thanks to you. I can tell you are going to go pretty far!
There's a function in Excel called NPV, Net Present Value, that does this for you.
Amazing ! Simply not overly complicated and easy to understand, no courses being offered just straight value ,,,,u sir are the hero we all need in this get rich quick market !
Finally someone who knows what they’re talking about, as a fellow finance person I really appreciate you showing people the real deal, instead of those fake gurus who I’m not entirely sure if they’ve ever studied finance at all. Great video!
There's NOTHING MORE IMPORTANT when investing than being able to calculate intrinsic value, knowing if a security is trading at a discount to that value at the moment, and knowing your margin of safety/maximum buy price. Keep in mind, valuation IS AN ART. It's not all science and math. So you have to give yourself some wiggle room, and the price of securities is always subject to buyer sentiment. Good video!
man this really cooks my brain
Thank you, do you have a video where you discuss different method of calculating and so on.
I used to think every investor went broke during recessions, meanwhile some make millions. I also thought everybody went out of business during the Great Depression, but some went into business. Bottom line, there's always depression for some, and profit for others, it all starts from having the right mindset. That said, I've set asides $150k to invest for future, unfortunately l'm a complete noob.
The market has gone berserk! regardless of experience level, everyone needs a sort of coach at some point to thrive forward.
True, A lot of folks downplay the role of professionals until being burnt by their own emotions. I remember couple summers back, after my lengthy divorce, I needed a good boost to help my business stay afloat, hence I researched for license advisors and came across someone of due diligence, helped a lot to grow my reserve notwithstanding inflation, from $275k to approx. $850k so far.
Can't divulge much, it's only right you do your due diligence. I'm been guided by Olivia Maria Lucas and most likely, the internet is where to find her deets.
Thank you for this tip. It was easy to find your coach. Did my due diligence on her before scheduling a phone call with her. She seems proficient considering her résumé.
Finally understood the DCF intrinsic value calculation - thanks so so much😂
Hi Tom, randomly fallen on your video looking for a clear explanation of Phil Town's Rule 1 method of intrinsic value and so far I admit you made the clearest and smoother explanation about it. Thanks again for your insight!
The best channel, thank you
Finally understood the DCF intrinsic value calculation - thank you!!
Thanks a lot, it took me ours to follow the example on paper manually but it helped. I hope to do it for many companies to master it
There was FANTASTIC value in this video
Thanks for this video! The easiest valuation video I've watched.
This is really amazing, however, can you please tell me how to apply this in case if a company EPS is in negative as. As I am stuck in one of the stock & wanted to exit the position but wanted to do the quick analysis for deriving the future stock value. So that I can decide whether to hold that stock or sell it.
Following
What industry
Any dividend
I'd rather estimate the Enterprise Value (EV) and then derive the fair share price value from there. Equity value = EV - net interest-bearing debt, and to get to the fair equity value per share (i.e. "future stock value") you divide by shares outstanding. The question is then, how to estimate EV? You could check the industry's multiples, such as EV/EBIT or EV/EBITDA, or you could do a DCF analysis based on expected free cash flow generation in the future.
I think for a negative EPS you wouldn't have a p/E ratio, you could use the price to book ratio. But yeah what value would you put into EPS would probably be what you project yourself. Maybe just use some best case EPS you find online (i.e whenever it comes to positive)
Did you ever figure this out ?
I feel like I've seen all the intrinsic value calc videos out there by now (!) and this is by far the best and best explained. So grateful for your efforts. Thank you thank you thank you :) Will definitely subscribe.
Hey Tom. Great video! Thanks for making this extremely easy to follow.
Quick question for you - Is there any reason we do not use the current P/E Ratio listed on the day of our valuation? In your method you either use double the current price per share or the average. Does your method provide a more accurate intrinsic value figure?
Tom you are a legend. you helped me so much understanding intrinsic value better than my lecturer. Thank you!
Thanks for simplifying it, the trouble with calculating intrinsic value is it’s a very subjective exercise. Investor should prepare their portfolio for 2021, as the stock market enters the final stretch of the year, it's worth looking back on your portfolio to consider what's still working and which strategies are at risk of falling behind.
Investors seeking to reposition their portfolio should consider ABBV, BKR, CF, COLB, KIM
My best value stock this past months are BPYU, NRG, ARD, NLOK, EAF.
Hi I’m trying to get into stock trading and investment, what do you say the most important thing to look at when buying stock?
A great opportunity to increase the income diversification of an investment portfolio can be provided with dividends that pays.
@@kumarvenkatesh6600 Don’t judge a stock by its share price, entering and exiting a trade at the right moment requires patienc. And most importantly ensure you thoroughly carry out research on company and make common-sense decisions before buying stocks.
Absolutely. Investors need to diversify their investment.
Amazing example of a simple discounted cash flow model. Congratulations for your objectivity.
Thank you for your help! I just did a valuation of Apple using this method today (5-24-22) and got to a margin of safety price of $36. The last time it was at that price was December 2018. Buffet, with his analysis, saw a buy at $150/share. Even if we didn't use a margin of safety, the current value price would be $73. It may take years (if ever) for Apple to get back to that price. And if it did, it would seem that Apple would be in some serious trouble. If investing for the long term, when can you say, "that price is good ENOUGH"?
Insights?
When it’s within your margin of safety. This formula is for finding value in companies that are undervalued. Apple is not undervalued currently.
You described/ explained this far better than anyone else I have seen on RUclips so far!
Excelent video thank you! Love how you spell it out step by step, looking forward to the updated version
Many thanks for giving the spreadsheet template
my friend you are the men. i have watched so many videos trying to find this and you need a PHD. thanks man.
a Phd??? Every commerce graduate knows a whole lot of this stuff.
I followed this technique and invested when the pandemic started in April 2020 and wow... gone on to make some serious money! Thanks for the video Tom!
Nice one :)
Thank you for your videos. This is great. Quick clarification question- why would you use the lower P/E number if you are value investing? Wouldn't it make more sense to use a higher P/E to be conservative on the investment?
Thank you for the insightful video. I'm 27 and I just started investing, I would like to know more about compounding interest in investing. I believe it's an essential concept to understand for long-term financial success.
Hi, how can I use this method if the company has negative earnings per share but a positive growth rate?
Use a different method
@@TechnoBacon55 yes thank you which one would you recommend
@@banksgraves5509 I wanna know as well
@@TechnoBacon55 lmao thanks for that enlightening answer
I'm a noob too but I believe a stock like that would be considered a "growth stock" and valued differently. If I understood this correctly, this is used for "value stocks". There are different categories for that reason... I think 🤔
Where can we find the P/E Ratio 5-Year High and the P/E Ratio 5-Year Low now? (because the part of the analysis of msn monay has changed)
Hi, I'm new to investing and have a quick question. Why do you multiply the 10 year number by the P/E ratio? Aren't large PE ratios and indicator of an overvalued company?
Yes, I’m curious too?
Great job making this video! I followed it up making my own google sheet and making the formulas there at the same time. Thank you!!
Two thumbs up, great content and verifiable by those in the know. Thanks!
Drone Ninja thanks for watching 🙂
Thanks for the amazing video. I'm 23 and just started investing. l'd like to learn more about compounding interest in investing. I believe it's an essential concept to understand for long-term financial success.
Hi! Good video. However, what I see is that in your model it is useless to calculate the EPS along the 10 years, as you just take the current EPS and multiply by current P/E ratio, and you get the actual price of the stock. What the real "intrinsic value" of company is, is the total growth difference of EPS within the next 10 years, which you then can subdivide into growth of your book value and the total amount of dividends. It makes also more sense, as this is the maximal price which you should be willing to pay, because it equals to 10 years growth of EPS. And therefore, you should not buy something over this price, as you would make a loss. More advanced models apply also a discounted rate. So, every year the particular annual EPS is devaluated by the discounted annual factor of 1/(1+p)^y, where p is the interest rate (should be at least higher than the devaluation rate of the currency) and y is the particular passed year. For normal long term value investing I am using 2%, and for more aggressive investing I am going until max. 10% pa. Because, the money you are getting in 10 years has a way less value to you than money, you will receive within the first 5 years.
Heyy I'm actually trying to understand investing for the very first time, and I would appreciate if you could tell me where you learnt this from so I could learn it there too 😭
this is the best video on youtube. thank you
In such times as this, you’ve got to make sure you consider having a diverse investment strategy. Your portfolio should have exposure to different areas of the market, including small or large-caps of ETF index, international stocks, grade bonds and alternatives like currency market (forex & digital-ledger) as this will help manage the overall risk on your portfolio
Probably Dave has more investments and savings. But you’re right, putting all your income into one place is also risky. Diversifying is the best option right now
If you invest aggressively over the long run he will get better returns. You will be able to generate consistent passive income
In the meantime this is presenting an insane opportunity for new investors or those sitting with cash waiting. To set themselves up in a good spot. Even investing in TSLA, bitcoins the volatility market at the moment.
Generally I prefer trading this way dave it ensure lucrative expectations
You are well enlightened Dave I didn’t think of trading this way, now I understand perfectly that it is advantageous and helps contain the risk of losing all your money
best video on calculating Intrinsic value in my opinion....simple yet effective, thank you..... this helped a lot with buying decisions..... thumbs up!
JET MB I think my newer one is much better, but thanks!
...or in a much easier way of getting the same answer: it is growing at 12% but you want a 15% return, so multiply the current price by (12/15). It is simple and gives you the same answer without the work.
Current price of $181.25 * (12%/15%) = $145.
Hi,
Where do you get that 181.25 ?
If I am not mistaken the formula in this video is eps*per*((1+GR)/(1+MRR))^9
He gave an example
Correct me if I'm wrong, but isn't your method too oversimplified? Tom's calculation takes into account EPS ttm which is important when determining intrinsic value as EPS ttm can be in the negative (more spending than income).
@@lloydmace3546 Shouldn’t the formula be eps*per((1+GR)*(1-MRR))^n (if n is the amount of years) though?
I used this formula to calculate buying Amazon today with a 50% margin of safety, and the result says if you can buy Amazon for less than $2,819.15 you'd be getting it a huge discount. I used the same numbers you used, the margin of safety 50% and minimum rate of return 15%. For the growth rate I put 34 and for the P/E ratio, I put double the growth rate which is 68. You'd think Amazon, as expensive as it is that it's overpriced, but according to this calculation even at $2,401 that it's at today, it's actually undervalued!
Bro, this was soooo helpful, can't thank you enough. :)
Wow, i have been searching for this but everyone was hiding this information
You have explained it perfectly 👍
Thanks for the video. I've been reading Phil's books, and this was helpful. Can you share about how you locked in the cell and dragged the equations through the row, or can you share a good resource for these type of excel issues? Thanks again.
senno52 you can either manually type the $ signs or press F4 to lock a figure in. That just means that the cell used in the formula won’t change when you drag, but it will for anything that’s not locked in
Got it, many thanks!
Dude and what does the result mean? If the result is UNDER the current price then it means it is a must buy?
@@MrMadmaggot No the result should be higher than the current price for it to be a buy. Using a 50% margin of safety we would want the result to be 2x more than the current price.
@@valueinvestoracademy The result must be higher than the current?
Thanks for that! Very helpful. Does this formula still apply in 2022? According to your calculation Apple should be bought below $40 as of today which seem crazy for the stock to drop that low
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Thank you Tom. Great explanation of valuation. Thanks for the excel download.
Never forget to compare the value of Apple stocks when Warren buffet actually purchased the stocks Vs their value now. For the quick of mind: if Berkshire has it in portfolio today doesn:t mean they would buy it at today's value
thanks from India, this is video is very much helpful
I did this on multiple top stocks yesterday that I’ve been following (including Apple) and it basically said every stock is incredibly overpriced/overvalued right now and I shouldn’t buy... Still thank you for the evaluation tool!
Try oracle and let me know what you think. I got 81.06 to buy on the sheet i think oracle is around 61 dollars. Im sure that means a buy but not quite sure to press the buy button.
Great video thanks. What happens when the EPS is negative?
Why do you calculate the pe ratio by doubling growth or averaging out the last five years instead of just using what the ratio is right now?
Wakamz the very long term growth of the market has been around 7-8% and the long term average P/E of the market has been 15 (around double the growth).
We want to figure out what we could sell the business for in a good market so will use an average (or even higher end) historic P/E for the company.
Often we’re buying into companies when some sort of event has sent the share price way down in the short term, so the current P/E wouldn’t be a fair estimate of a future multiple.
Hope that helps 🙂
First time i ever commented on a RUclips video. Was really great info. Especially for people who are starting out. Thanks
Ah! The good old value investment. Gone are these days at least for the near short term. Everything is inflated right now and P/E and fundamentals are thrown in the garbage.
Look outside the american market. You can find some gems. Maybe without sexy names.
Yeah,everything is not really reflecting on the current state of economy its insane
Its because interest rates are so low. 10 year US gov bond rate is less than 1%. People are pumping money into anything that can give them a higher return.
Great video but....Should I use the diluted eps ttm figure or the non diluted figure ?
that was amazing - thank you. Do you have time elect a stock valuation model to analyze a stock and make a recommendation? I was thinking of Amazon and how it's operating in today's market (giving the pandemic).....
What a fantastic video. Simple and easy to understand
Don't you need to add the present value of each year's earnings to the present value of the terminal value?
I dont think so. Cz the price is relective of those earnings...just my view
Simplest evaluation method ever. Best!!!
Tom, I am sure that there are many other viewers note that the forecast MOS buy price from this calculation looks to be very low and unrealistic for some companies as shares prices have not been this low in 10 years. One point that I make, using the TTM EPS is a snap shot in time and may contain limited view (in light of the recent pull back). Would an average EPS for prior 5 years be more realistic?
Bro, this is an amazing video. I used to use Phil Towns calculators but yours example is amazing. Only thing I can't understand how to find Growth Rate if not to look in yahoo, there was some sort of formula also how to get it correctly, and than you choose which of to is lower, the one you got or the one in yahoo...
Mate, great video. Easy enough to follow.Cheers.
henry michal thanks Henry, appreciate it! Glad I could help
Great explanation! I read Rule #1. Good job
Great video, thank you. Any chance you could upload your excel template? Thanks.
Thanks for watching. I've just added a link to the spreadsheet in the video description
The man! Thank you.
djpaulhannon no worries. Hopefully it works ok. If not, let me know
@@InvestingwithTom Hey mate - i just tried this with Amazon, just outta curiosity and when I put in the growth (86%) everything went a little awol and just got ##### signs everywhere. Why would that be, do you know?
Thanks
djpaulhannon haha yeah. I think the numbers probably got so big you can’t see them. Just make the columns a bit wider and you’ll see the figures. Keep in mind that’s an average growth rate of the next 10 years, so 80+% a year for a decade just won’t happen
Fantastic video!! Thank you!
currently the share price is $318 and after finding intrinsic value i get $155. does that mean it is over valued or i am doing something wrong
Got the same thing! Guess it's over-valued!
Keep in mind that this valuation is a raw example. If the stock is paying divs, you have to consider that in your calculation as well.
Lastly, companies growth rate tends to slow down in time, so you might want to take say 7-8% instead of 12 in the last couple of years of your projection
@@summer2011909 Also I think the brand name increases the value of the share, future plans, innovations...etc
good luck waiting until apple comes down to $155 share....It ain't gonna happen. I've used Phil's calculations during this crisis of 40-50% reversal on numerous stocks...ALL are overvalued and one 1 out of 50 might fit the criteria of buying @ .50 cents on the dollar. Sit on the sidelines with worthless cash and watch everyone else make money. No thanks. Find a fair price and go in.
How do you calculate the intrinsic value if the EPS ttm is negative?
That confuses me too.
Why can’t I just use the P/E ratio shown in Yahoo Finance?
Thats usually just the trailing 12 month PE ratio. You want to consider the P/E ratio range that Apple can trade between and take the average. 2x Growth rate is surprisingly accurate.
that was really good. I learned a lot. Thanks Tom.
The numbers dont work in the spreadsheet (i get 24.73 after 10 years)
Thanks mate excellent and simple explanation. Cheers from Melbourne!
Hi Brother, you excel sheet is great. do you have a Chat group or any platform to discuss ? maybe instagram group, WA group etc. thanks
Kris Hsu thanks for watching. Glad it’s useful! I don’t at the moment, but we could do that if there was enough demand
Great vid!
& shares spreadsheets for no cost - top bloke!
How would u calculate a negative/ up & coming company.
It would be great if u did a vid on this.
Thank u
Does this stock valuation take into account the time value of money? I know for other forms of intrinsic valuation, like DCF for example, discount earnings or cash flows to the present because money in the future is worth less than today. I honestly might be missing something, but if this method does not include some sort of discounting, wouldn't that pose a problem regarding the accuracy of the intrinsic value result? I'm sort of new to this stuff so I might just be thinking too hard lol.
The minimum rate of return is the discount rate
It would. This formula doesn’t take into account inflation or opportunity cost of having money locked in, however, I still think it represents a good place to start.
Tom there’s a reason there’s no dislikes on this video. May God bless you🙏🏾
Just wondering, is this Net Present Value calculation or it's a different thing?
It's basically DCF model
@@luisdperdomo6377 ITS A DISCOUNTING MODEL....
@@Akshay_3099 not discounted cash flow though. This is whole sheet works to calculate the net present value of the stock (after margin of safety, assuming the minimum return). None of these values are cash flows, just earnings per share and stock price.
great video!!! Does this modelling technique have a name?
You can now download the spreadsheet by following the link in the video description :)
What if the stock has a negative earnings per share? There are a lot of value stocks with negative earnings per share.
David McCrary made a video on this a few weeks ago!
David McCrary can you take a look at Tesla please ...its having a very big growth rate en P/E
PLEASEEEEE break down TSLA!! Ive been wanting to buy in, but the price keeps soaring!
Andy T I’m afraid all the Tesla fans won’t like my opinion on the price!!
Very well explained 👏
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This was a great basic breakdown! So may other will just make up percentages but you give a good explanation of why the numbers are what they are.
Thanks for this, well done! Just a quick question, shouldn't year 1 on the excel file be technical year 0 (which is the present)?
Froiland Timpoc that’s not how I’ve seen in taught, although I see what you’re saying
Agreed. I've just left a similar comment. But I'm not sure it makes any difference - it just means the projection period is 9 rather than 10 years.
Thank you for your good explaining
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Excellent work bro
so at the time of making this video, apple was overvalied?
under the caveat that you want a 15% then I think so. If you are comfortable with a lower minimum return it might've been fairly valued or even cheap. Apple also has around $20 or so in cash per share you'd effectively own too, which you could add back in. Thanks for watching :)
Thanks so much Tom. I've seen so many videos and noone makes it as clear and simple as you. Thanks from the UK
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