Benjamin-Graham’s Formula for Intrinsic Value


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Don't you think that it's really usefull information for the newbie and how it will help him to understand such complex formula if it's needed entirely and clearly anyway. Let's move on with such matter for your own goals;)


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Here I am reproducing the mentioned Formula shown in 8:13 of the video replacing most of the constants followed by my analysis. All variable names are camel cased for easier reading....

(EarningPerShareOfAStock * (assumedFairPriceByEarningRatio + 2 * assumedFutureSalesGrowthFor7to10Years) * InterestRateOf_TripleA_USA_CorporateBonds)
Divided by InterestRateOf_TripleA_India_CorporateBonds
Key Points from the Video
1) The vlogger demonstrated google search to show that InterestRateOf_TripleA_India_CorporateBonds value is 6.1
2) The vlogger suggested using to look up for EarningPerShareOfAStock and for assumedFutureSalesGrowthFor7to10Years
3) The vlogger declared that InterestRateOf_TripleA_USA_CorporateBonds value is 4.4
4) The vlogger provided hard-coded value of assumedFairPriceByEarningRatio is 8.5

My conclusion

Points numbered 1 and 2 of the vlogger are correct....
InterestRateOf_TripleA_India_CorporateBonds is indeed 6.1 as per google,com (screen shot attached)
EarningPerShareOfAStock and assumedFutureSalesGrowthFor7to10Years for SBIN is 13.54 and 8.06 respectively as per (screen shot attached)

Point 3 of the vlogger is grossly incorrect....
InterestRateOf_TripleA_USA_CorporateBonds is 0.560 declining as per investing,com (screen shot attached). The vlogger sets this value to 4.4 and uses it as a constant in formula

Point 4 is grossly incorrect....... Again the vlogger is using a constant like 8.5 for assumedFairPriceByEarningRatio. It is better to use ROCE value as shown in ROCE stands for Return on Capital Employed.

Finally, plucking all of the values and placing them for SBIN reduces intrinsic value formula to

(13.54 * (4.66 + 2 * 8.06) * 0.560) / 6.1

Upon evaluation, this gets result of 25.8 as intrinsic value of SBIN....
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At the start of the video, vlogger pitches the formula as one of the "key" reasons for success of Buffet. But after presenting formula and calculations @ time 11:10-11:20, the vlogger says that this analysis is not conclusive and then names 6 more fundamental parameters and many other unnamed ones....

So, why even bother with this Intrinsic if it is not reliable....

Also, there is no limit to how much a stock will discount below Intrinsic.... Question of "How much discount is ample discount?" remains unattended to...

One very good example is SUZLON. ke hisaab se book value bhi negative hai but this formula says its intrinsic value is 16 rs.. Stock is available for 3 rs... Go FIGURE!!!

=(-3.96 * (-7.81 + 2 * -18.68) * 0.560) / 6.1

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