GRAHAM'S FORMULA How to calculate the Intrinsic Value and the Margin of Safety of a Stock ?

The Benjamin Graham 's Formula :

Intrinsic Value = Current Earnings * (8.5 + 2* Long Term Growth)

Margin of Safety =
(Intrinsic Value - Close) / Close

Learn more on Graham's Formula here

GRAHAM'S FORMULA / Discounted Cash Flow EXCEL SIMULATOR : With this simulator you can compare the fair value given by a two-stage discounted cash flows model with the fair value of Graham's Formula.

SCREENING : An easy and efficient screening tool to find Value Stocks with Benjamin Graham's Value Methodology

New ! How to access Berkshire Hathaway's holdings ?

Value investing is :

- buying, with a sufficient margin of safety, a part of capital of a company whose market price is below the company's "real" value, or "intrinsic value".
- selling the stock when the market price reaches the intrinsic value.

The theory of ‘value investing’ was invented by Benjamin Graham as early as 1934 and is based on the assumption that two values are attached to all companies. The first is the market price – the value of the company on the stock exchange. The second is a company’s business value.

All companies have an intrinsic value or business value, which is based on its ‘real time’ value in the event of a merger with a competitor or in a takeover situation. Alternatively the owners may consider the business value as the amount that could be achieved by breaking up the company and selling all its assets.

In the long term, stock prices will reflect this business value, but in the short and medium term, market prices are often far above or below it. Value investing seeks to make the most out of this disparity.

Finally, investments should only be made when the market price is considerably lower than the business value – a minimum of 40% to 50% below. This difference between the market value and the business value is called the ‘margin of safety’.

A wide margin of safety secures the investments against a permanent loss of capital – even though short-term adverse market movements may occur.

The stocks should be sold when the market price gets close to the business value.

Consequently, value investors must demonstrate patience when growth stocks are most popular among investors. History has shown that value stocks and growth stocks alternately lead the performance statistics.