How Warren Buffett Calculates the Intrinsic Value of Stocks (FULL EXAMPLE)

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In this video I explain exactly how to calculate the intrinsic value of a stock, using Warren Buffett’s key principles. Warren Buffett over the years has spoken a lot about stock valuation and has described numerous times how he uses a Discounted Cash Flow Formula (Present Value of Future Cash Flows) to estimate the value of a business on the stock market.
Here I explain what intrinsic value is, according to Buffett, the maths behind calculating it as well as provide a free intrinsic value / buy price calculator spreadsheet (first link in the description above!).
I also breakdown the 3 key inputs that we need to find in order to use the formula as well as provide a full example of a real stock I analysed using this method, an investment that has delivered me 53% per year compounded returns over 2 years.
Terminal Value Explained
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Cash Flow For Owners Explained
▶︎ • Cash Flow For Owners E...
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Disclaimer:
The information in this video is general information only and should not be taken as constituting professional advice from Hamish Hodder.
Hamish Hodder is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your unique circumstances.
Hamish Hodder is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this video.

[@Arturg438]

Honestly, I understand that these sort of videos are not that hyped and you won't have a million views on it, but it's the most helpful ones to really learn something new, so thank you so much for posting them every once in a while! I really appreciate your desire to teach and I find your way of teaching the most helpful. Thank you, Hamish!

[@theoj4562]

Great video. Been a while since we've been blessed with this format and a real example. Thanks

[@ashleyroberts8728]

Thank you so much for this free content! As a student this basics playlist is fantastic. Wish you all the best for your successful future.

[@TheInterviewSage]

Great video, Hamish. Excellent explanation on calculating the intrinsic value of a company. One question. For the calculation, you initially took 50% as the margin of safety. However, when it came to investing in TXRH, you invested at a margin of safety of 40-45%. So, my question is, how did you decide when to go all in TXRH before it's too late? Or do you start buying in small trenches and lower your cost basis using dollar-cost averaging once the stock price has hit a certain margin of safety (e.g., 30%)? Kindly let me know. Thanks for your insights 👏 😀

[@dougie_big_bo]

Great content!!!!

[@Dissectorknowsit]

Good to have updated discounted cash flow basics again! Very helpful (again)! I also saw people use "discounted dividends" to calculate intrinsic value of a dividend stock (eg., VZ). I will be waiting for Hamish version ;) .

[@simonkp3202]

Appreciate systemic thinking approach to investing, but didn't most of the market go up nearly 100% since March 2020. Perhaps another example would be better when there is no once in a lifetime event involved?

[@SergiMedina]

Interesting, thanks. I use different valuation methods according to the company, stocks, objectives... But most of the times it's just discounting.

[@j.m0ney133]

Fantastic video Hamish. Finding the intrinsic value of a company is vital to determine the buy price and a margin of safety.

[@Evchen35]

Great!!! Thank you so much!!!

[@jason11332]

That's quite a lot of effort and time for estimating the intrinsic value of stock! Dont think it is worth to spend such amount of time and effort on that for me to just invest small money hahaha. But still thanks for such clear explanation, hope it helps me in the future!

[@brianscott5182]

It's totally worth it Jason. You get the opportunity to practice while the amount you're investing is small, so if you make a mistake, no problem, lesson learned. On the other hand, your investments will grow where you have made the right choices. Learn this stuff now, and one day when you're investing millions, you will remember these early days of learning...

[@Allen-L-Canada]

@@brianscott5182 very small percentage of people are able or willing to do this kind of calculation. it will take a years to become good at it, but it's worth it.

[@LPRoee]

Thank a lot fot this video! Great content. I find the hardest part fot me is to actually find the great companies, as there are thousands of stocks out there. Do you have any tips for finding a healthy business? Thanks again!

[@Tom-ye3qs]

Good video. Hi Hamish, What is the competitive advantage and mot about Texas Roadhouse that you considered doing a deep dive into researching this business?

[@vikvashisht6310]

good on you mate

[@radtent1496]

Thanks for the video. I sounds little too hard to get a growth rate number for the next 10 years based on business projection with hands off this business. Is there a more objective way to get that growth percentage? Get numbers from non numerical variables sounds difficult to me. Thank you so much for the lesson.

[@joshuagaa7009]

How may hours does it take for you to fully analyze and evaluate a business? Assuming that you've already gone through the fundamental analysis, technical analysis, company management, economic moats, and valuations

[@chibble3591]

how do you insert the tikr to get the values?

[@danfaulker9998]

Hey champ , could you do us a review of your portfolio and your top holdings? Would be keen! 👌

[@brandonflorida1092]

But, for people who don't have your spread sheet, what is the formula for intrinsic value? How was this s "full example?"

[@akashdesai1739]

What is your opinion on relying on yahoo stocks or the wall street journal to buy stocks. If Yahoo Finance says the stock price is undervalued, is the stock at the intrinsic value?

[@danh0583]

Still a huge fan mate! Loving your work.

[@crystalchi1207]

Thank you

[@franciscomedina3820]

This is exactly the perfect video I needed to see for Intrinsic Value :)

Did you come across the recently published paper "Everything is a DCF model" Hamish? Fantastic paper!

[@VanGrando]

I might change my mind in the future, but at the moment I stop trying to figure out how this approach works. It’s too complicated for me. But good video and good luck to everyone! 👍💰

[@HamishHodder]

Fair enough :)

[@Allen-L-Canada]

It took me few weeks to get comfortable with it. but I like working with numbers in spreadsheet, which kept me going. plus, Hamish has been inspirational to this process. :)

[@spraveenca]

@@HamishHodder Bro Can i use the same for Indian share market stocks bro??

[@jeffreyforbes5572]

Ever since the pandemic, I realised that I cannot depend only on one job and I cannot depend on the government neither. I was saved when I heard about Miriam Rachelle Cuff. I decided to check her on google and when I read about her, she is one of the top brokers who help investors and newbies. She runs investment programs and also trades for so many people on different platforms and gives ideas also. You can reach her on google platform.

[@joellim7010]

People who calculate intrinsic value before investing in a stock are no different from gamblers because everyone's intrinsic value is different from each other. Growth rate is a complete assumption as well. This is why I know many people who using the discounted cash flow method to buy stocks and still lose all their hard earn savings.

[@khamady]

Great video Hamish! Thank you 👍

[@thomasmatthews478]

Remove the terminal rate imo

[@danyk88]

First of all, almost anybody investing in the stock market in 2020 would get a huge return. While texas roadhouse is a good business, as a cyclical business, it will suffer lots of ups and downs. Secondly, the growth estimates wasnt clearly answered. I doubt anybody can have such as great understanding to go against everyone realistic expectations. A little bit of common sense should be enough. Lastly, I have listened several videos from hamish and the young investors who followed the doctrines of phill town. They have yet to explain why we should use 50% margin of safety. Why not 20? Why not 30? If you have such a deep understanding of the business (as they repeatedly mention in their videos), the room for error is minimal. I would say 20% below the intrinsic value (already 15 rerurn included) should be enough in this market, assuming you did your homework. Yes, 50% is great, but waiting years for a stock price to drop is time we are missing the compunding interest.

[@sang3Eta]

How I calculate the value of Bitcoin... M2 dollar supply ÷ 21m Bitcoins = $1m M2 dollar supply ÷ world gold oz = $3k

[@SergiMedina]

Congrats. You have a brilliant future (holding the bag). ;)