What Is Intrinsic Value? – A Consolidated List

By combining value elements advocated by Benjamin Graham, Warren Buffet, Charlie Munger, and Peter O’Shea & Jonathon Worrall with my own investment goals, I’ve arrived at something I think is my definition of intrinsic value.

It’s mine because the combination meshes with how my actual investing behavior evolved over the past five years. I started out following Jim Cramer and thinking that a month was a reasonable investing time horizon. I gradually learned that such a short horizon was trading and speculating – not investing.

I read a lot and tried things and found that some things worked better for me than others. I found that Warren Buffet’s “forever” holding period works very well with my basically long range “turtle” approach to life in general. And I realized that if “forever” was indeed my preferred holding period dividends were required, otherwise stock certificates may as well be used as wall paper.

So I began my search for a personal definition of intrinsic value. It’s resulted in the following 14 value elements.

From Benjamin Graham, Peter O’Shea and Jonathon Worrall I’ve taken:

(1) Strong Cash Flow
(2) Strong Earnings Growth
(3) Dividend Consistency
(4) Consistent Dividend Increases

From Benjamin Graham I’ve adopted:

(5) Profitability
(6) The Formula: E(2R+8.5)*Y/4 = Intrinsic Value per share

From Warren Buffet:

(7) Good returns on equity
(8) Little or no debt
(9) A business model I understand
(10) A durable competitive advantage

From Charlie Munger:

(11) Measure Risk

And I want my investments to have a relatively high probability of achieving my goals of:

(12) Providing reliable long term dividend income streams
(13) Increasing annual dividends faster than the inflation rate
(14) Expected to generate at least a 9% total return compounded annually

In my previous post I described how I would measure

(3) Dividend Consistency
(4) Consistent Dividend Increases

Next I’ll determine how I’ll measure the other 12 of the 14 chosen value elements.

14 Value Elements in My Definition of Intrinsic Value
(1) Strong Cash Flow
(2) Strong Earnings Growth
(3) Dividend Consistency
(4) Consistent Dividend Increases
(5) Profitability
(6) The Formula: E(2R+8.5)*Y/4 = Intrinsic Value per share
(7) Good returns on equity
(8) Little or no debt
(9) A business model I understand
(10) A durable competitive advantage
(11) Measure Risk
(12) Providing reliable long term dividend income streams
(13) Increasing annual dividends faster than the inflation rate
(14) Expect to generate at least a 9% total return compounded annually

Link to Other Topics in the Special Report: What Is Intrinsic Value?