- What is Fair Value? How’s it related to the margin of safety? Upside?
- Warren Buffett’s views on the importance of fair value.
- Calculating the Finbox Fair Value.
Put simply, a stock's fair value is its real or underlying intrinsic worth. Investopedia defines intrinsic value as the perceived or calculated value of an asset, an investment, or a company. The term finds use in fundamental analysis to estimate the value of a company from in future cash flows. The prolific professor Benjamin Graham, who's considered the father of value investing, told his students to look for opportunities where a stock trades at a discount to its intrinsic value. It worked out well for his students like billionaire investors Warren Buffett and Charles Brandes. He called discounts to intrinsic value that make a stock suitable for investment, "margin of safety."
So why’s this important?
Here’s what the most successful investor in the world (Warren Buffett) has to say about it:
Finbox Fair Value
Ok, so fair value and margin of safety are important but how do we figure it out for a specific stock?
The Finbox Fair Value card is a great starting point.
While there is no definitive way to estimate fair value, there are generally accepted methods in academia and in practice to determine the value of a company. Economists and finance professionals have created methods such as discounted cash flow models, comparable company analyses, and dividend discount models to estimate fair value.
Finbox's advanced financial modeling technology builds millions of such models a day for companies across the globe to estimate their fair values. These models are similar to what an analyst at an investment bank or equity research firm would spend their day building. Best of all, Finbox makes all underlying models and assumptions available for you to review. So if you're curious about the methodology or want to tweak model assumptions, you can do so easily.
Here is an example of Apple's Discounted Cash Flow model: View Interactive DCF Model
Great analysis needs to start with great data. That's why we partnered with a highly reputable data provider like S&P Global Market Intelligence. So Finbox users get to work with the same data used by some of the largest investment banks and money managers in the world. The default assumptions used in models are based on consensus analyst estimates when available.
Finbox's technology also makes it possible for you to identify companies that may be overlooked by investors (undervalued) or overhyped by manic news cycles (overvalued) based on fair value estimates using the Stock Screener tool. The Stock Screener tool allows you to specify criteria and find stocks that match your criteria.
Customize Fair Value
You may prefer to rely more heavily on certain models for certain stocks. Finbox gives you full control to quick sensitize the default fair value estimates. You can easily toggle the models you want to include in the model breakdown:
Try Finbox Premium for 10 days to gain access to this great tool that will help you figure out what your stocks are worth and start making better investments.