Thursday, October 8, 2009

Intrinsic Values

A couple of readers recently asked me for my valuation numbers for a particular stock. The fact that I declined to divulge that information led to a few e-mails asking if there was a particular reason I was not willing to share such info. As such, I thought it best to share my thoughts on the subject with a post.

First of all, I don't want to get into debates with readers about the calculation of various components that form part of a valuation. Everyone will have their own opinion when it comes to valuation, and that's okay, as the purpose of this blog is not to converge on a single opinion but rather to discuss the relevant issues that can have an impact on a valuation. If I had to spend time discussing/debating/describing each of the various inputs that form part of my valuation, I wouldn't have enough time devote to more productive endeavours.

Furthermore, by sharing my valuation numbers, I am also opening the fund up to competition. Many of the stocks discussed on this site are not liquid, but even for the ones that are, I open the fund up to front-runners: if readers are buying/selling ahead of me because they know my valuation, I'm doing a disservice to the fund's shareholders, which is not acceptable.

Also, while it would be nice to be right all the time, I am far from it. As such, I have no interest in opening myself up to future scrutiny for the stocks which just don't work out. The fund is intended to be used to judge performance, not individual securities whose returns can be taken out of context and for which someone may hold me liable.

Finally, one of the major themes of this site is that individual investors should learn how to make their own investment decisions, and not just count on the musings of analysts. If I was displaying my own valuations, I would be subtly encouraging readers to take it and run with it. This doesn't make me much different than the analysts we criticize, or the google ads that appear in the top banner of this page, where advertisers offer "hot penny stocks" and other items designed to acquire your e-mail address. While I'm happy to profit off of them by way of reader clicks (and I thank the reader for those, as they form a significant portion of the site's modest income), I don't aspire to become them.

Happy investing!


Unknown said...

Well said and more power to you! I look forward to your postings and have learned a great deal. Keep up the good work, Barel.

Dada said...

Good article. As Peter Lynch puts it himself: Investing is part science, part art. 'Intrinsic Values' are subjective figures on how an investor view a particular stock. Everyone has their own method and metrics which include math and subjective opinions on management and future prospects of a company. Putting out valuation numbers is not a very productive endeavour in your blog as there are other Web sites that specifically dedicate to this . Then again, these numbers differ wildly and so are the analysts' opinions.

Anonymous said...

great points. I'm here to discuss ideas with smart investors, the valuation part of it has so many variables and assumptions i would put little value on someone else's valuations and methodologies anyway.

great GREAT blog! thanks for your work!