Intrinsic Value - Explained
A beginner-friendly explanation of Intrinsic Value in value investing.
Intrinsic Value Explained
The true underlying worth of a business, independent of its stock price. The key metric value investors compare against market price to identify undervalued opportunities.
What It Means for Investors
The Definition
Intrinsic value answers the question: "What is this business actually worth, regardless of what the stock market says?"
Unlike market price (which changes constantly based on sentiment), intrinsic value is a theoretical estimate of what an informed, rational buyer would pay for the entire business.
Why It Matters
"The key to investing is not assessing how much an industry is going to affect society or how much it will grow, but rather determining the competitive advantage of any given company, and above all, the durability of that advantage." — warren-buffett
Most investors fixate on price. Value investors fixate on the gap between price and intrinsic value.
| Scenario | Action |
|---|---|
| Price < Intrinsic Value (significant) | Buy — Margin of safety exists |
| Price ≈ In |
Key Takeaway
The true underlying worth of a business, independent of its stock price. The key metric value investors compare against market price to identify undervalued opportunities.