Buffett on calculating "intrinsic value" · Transcript · BuffettMungerGPT

WarrenThe intrinsic value of any, any business, if you could foresee the future perfectly, is the present value of all cash that will be ever distributed for that business between now and judgment day. And we're not perfect at estimating that, obviously. But that is, that's what an investment or a business is all about. You put money in and you take money out. ESOP said a bird in the hand is worth two in the bush. Now, he said that around 600 BC or something like that. But that hasn't been improved on very much by the business professors now. Now, the question is, is, you know, how sure are you that there are two in the bush? You know, how far away is the bush? There are all kinds of things. What are interest rates? But, I mean, ESOP wanted to leave us something to play with over the next couple thousand years. So he didn't spell the whole thing out. But that's what in. intrinsic value essentially is it and we don't, Graham would say that Phil Fisher would say that Phil Fisher would say that in calculating that he would want to look a lot harder at the qualitative factors of the business in making that estimate of how many birds were in the bush. Graham would say he would want to see the bush, you know, two dollars worth of cash in the bush, you know, and to pay a dollar for it now. And, uh, it, it, One emphasized quantitative factors and one emphasized qualitative factors, but neither one would have disagreed with the math. And I started out very influenced by Graham, so I emphasized quantitative factors. Charlie came along and said I was all wrong and that he'd learned more in law that I'd learned in financial studies and everything, and that I should think more about qualitative factors, and he was right. And Phil Fisher said the same thing. But that's what intrinsic value is about. You know, if you buy a McDonald's franchise, if you buy General Motors, whatever it may be, the real question is, A, are you going to have to put more cash into it after you buy it? But it's really cash in, cash out, when, what discount rate, all the standard stuff.