Cold Brew Money

#13 - Getting Started with Intrinsic Valuation

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Today we discuss:

Why do you value a company?

  • First principle: Opportunity Cost
  • Your returns are determined by the price you pay
  • It's a good anchor point
  • If there is some event that pushes the whole market down, if you know the value you can pick up great companies at cheap prices
  • Forces you to put in the work thereby avoiding obvious mistakes
  • You need to find a dollar that is selling for fifty cents

    • Intrinsic Valuation

    • Present Value of future cash flow
    • If you had to invest in a neighborhood lemonade stand? How much will you pay for it?
    • Very simple lemonade example (https://docs.google.com/spreadsheets/d/1FBu2Td7vnva9DHSvWVOL3-XwTAQ1UtXT9Ihk5sO1G9E/edit?usp=sharing)
    • Discount rate: Let’s say that you’d take $900 today instead of $1000 exactly a year from now. That means you’d accept a 11.1% “discount rate” on that transaction.
    • Growth rate
    • Terminal value
      • ...more
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      Cold Brew MoneyBy Atit Kothari and Tapan Desai
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