Calculating intrinsic value is great if it was dependable and possible to calculate accurately. The 1938 thesis by John Burr Williams, "The Theory of Investment Value," was groundbreaking and introduced us to fundamental analysis. He proposed calculating intrinsic value of a stock by discounting all future cash flows to the present. No argument, as investors we know this.
But chances are we don't come close to the true present value as the future is speculative. Change any of the inputs and we get widely different present value calculations. The timing of future cash flows, growth rates, discount rates, future shares outstanding or future debt, terminal value and ultimately the market's interpretation of its risk and fair value. Continue Reading »