IV... and your estimation

[Palantir]

 

When the company goes out of business, count the cash it created (or consumed).  Go back to any time in history and discount.

 

If it is a product of cash produced and discount rates, and if both of those things exist, then IV exists.

 

That is a helpful or harmful way for you to see it, depending on which market participant is doing the observing.

 

 

- Well what if it doesn't go out of business? If it does, sure you can put a liquidation value on it, but if you generalize it to all firms, it seems LV is just a subset.

 

- Indeed, if it is makign money, surely it has to be worth something to somebody. But it is worth differently to different people, there's no single number, unless you're doing a weighted average.

 

Just IMO. Maybe it is the sign of a top :).

[jay21]

Only if you are a stout determinist could this possibly be true.  I.e.  If it is possible that the future only has one potential outcome and that outcome is knowable, then there could only be one IV.  Since the second condition is undoubtedly false, it is much better to assume a range of IVs. 

 

Perhaps you read my first post too fast. There are a huge range of theoretical outcomes for IV, but only one eventual outcome. Without oracular vision, that outcome is not knowable. We're all somewhat clueless about the future, so we estimate a probability-weighted range of IV.

 

I stand by what I said.  Your statement of theoretical outcomes implies that the IV can be different depending upon the path.  Eric's statement implies a singular IV.

 

For example, say a company is facing life threatening litigation that will put it out of business.  It will make 10 dollars forever.  The true odds of winning are 50% and the date the judgement will be read is one year from now.  The market uses a fixed equity rate of 10%.  Your probability weighted IV would come up with a current IV of $50.  Eric's statement implies that the IV will only be known after the judgement is read (i.e it will either be $100 or $0 depending on what time reveals.)  Therefore, I stand by my conditional statement above.

[premfan]

I agree that there is earnings potential, but to me it seems fluid, and different depending upon who is evaluating. AKA I may think you have a great post MBA future, but maybe employers disagree with me. In a sense your IV depends on the people evaluating you (the market) rather than any intrinsic ability you may have. But we can reasonably estimate that it will increase.

 

As a result I disagree with the notion that value is an intrinsic property or that it can be estimated/revealed.

 

The best reply i could give is value gets revealed by execution. Anything you value you have to take action ( execution) for it to potentially manifest itself. People want to get rich but they choose to  watch tv and play video games. Or even worse work for an employer trading in time for money.

 

Every human being has the same IV. Its the execution and value system that separates the jordan belfort from a warren buffet.  The marketplace is the ultimate judge of whats valuable. Fill a marketplace need and boom your valuable.  People and markets will always evaluate you or anything.  Its the name of the game. Accept it, Embrace it , and use it as leverage.  Intrinsic ability is useless its called potential. Back that up with great execution and your a master.

 

Earning potential ( economics of asset) + execution = IV .  Take one away and it doesnt flow. IV is subjective and there is no one right number. Use the framework of is the company increasing or decreasing its earning potential. Make it polarizating so its not so subjective of a number.

[premfan]

 

 

As a result I disagree with the notion that value is an intrinsic property or that it can be estimated/revealed.

 

What i take from this statement is nothing has value. No business or anything can control its execution. The first part is a value system issue. Everything has SOME value. The second part is correct. No one or business can fully control its execution. Having a go with the flow mindset and living in a relative world not absolute world mindset will help when things go a bit south.

[JBird]

Only if you are a stout determinist could this possibly be true.  I.e.  If it is possible that the future only has one potential outcome and that outcome is knowable, then there could only be one IV.  Since the second condition is undoubtedly false, it is much better to assume a range of IVs. 

 

Perhaps you read my first post too fast. There are a huge range of theoretical outcomes for IV, but only one eventual outcome. Without oracular vision, that outcome is not knowable. We're all somewhat clueless about the future, so we estimate a probability-weighted range of IV.

 

I stand by what I said.  Your statement of theoretical outcomes implies that the IV can be different depending upon the path.  Eric's statement implies a singular IV.

 

For example, say a company is facing life threatening litigation that will put it out of business.  It will make 10 dollars forever.  The true odds of winning are 50% and the date the judgement will be read is one year from now.  The market uses a fixed equity rate of 10%.  Your probability weighted IV would come up with a current IV of $50.  Eric's statement implies that the IV will only be known after the judgement is read (i.e it will either be $100 or $0 depending on what time reveals.)  Therefore, I stand by my conditional statement above.

 

Then I was being unclear. There is a singular IV.

 

Consider a coin-toss. We know there are two possible outcomes. And we know that time only reveals one outcome- the actual outcome is IV. I hate to sound like a broken record, but if I could have seen the future I'd have known the IV.

 

I didn't know IV before the coin-toss occurred, so I have to guess, and I guess based on probability.

 

I'm not saying that the probability-weighted range of values is the intrinsic value, I'm saying it's the best guess I can make.

 

 

[jay21]

Only if you are a stout determinist could this possibly be true.  I.e.  If it is possible that the future only has one potential outcome and that outcome is knowable, then there could only be one IV.  Since the second condition is undoubtedly false, it is much better to assume a range of IVs. 

 

Perhaps you read my first post too fast. There are a huge range of theoretical outcomes for IV, but only one eventual outcome. Without oracular vision, that outcome is not knowable. We're all somewhat clueless about the future, so we estimate a probability-weighted range of IV.

 

I stand by what I said.  Your statement of theoretical outcomes implies that the IV can be different depending upon the path.  Eric's statement implies a singular IV.

 

For example, say a company is facing life threatening litigation that will put it out of business.  It will make 10 dollars forever.  The true odds of winning are 50% and the date the judgement will be read is one year from now.  The market uses a fixed equity rate of 10%.  Your probability weighted IV would come up with a current IV of $50.  Eric's statement implies that the IV will only be known after the judgement is read (i.e it will either be $100 or $0 depending on what time reveals.)  Therefore, I stand by my conditional statement above.

 

I hate to sound like a broken record, but if I could have seen the future I'd have known the IV.

 

 

Right, if the future is fixed and knowable, then there is only one IV.  If the future is unknowable, then it is better to assume a range of IVs.  If the future is not fixed and unknowable, then there exists a range of IVs.

 

This is what the first quote says.

 

[LC]

And we're just talking about one company. Take the sum of the IV of all companies and businesses existing in society, in the world, and what does this number describe? Is it the intrinsic value of humanity's activity on the earth?

 

If that is the case, should this "total IV" also account for ecological damage, "happiness" created, etc...or are these concept already priced in by the cash flows.

[ERICOPOLY]

The future holds only one IV.  Oh, you may deny it and instead talk about ranges and probabilities etc... but don't let lack of control frustrate you. 

 

What to look for in order to gain back a measure of control?  Attributes that accentuate your predictive powers:  for example, you can assume that diapers will still be in demand fifteen years from now, but you are less certain that a specific technology will not be replaced by a better one.  All the rest of the stuff that Buffett keeps trying to teach us...

 

[ERICOPOLY]

They flutter behind you your possible pasts

Some brighteyed and crazy some frightened and lost

A warning to anyone still in command

Of their possible future to take care

 

[enoch01]

They flutter behind you your possible pasts

Some brighteyed and crazy some frightened and lost

A warning to anyone still in command

Of their possible future to take care

 

A very underrated album.

[RichardGibbons]

Ericopoly and Birdman, you seem to be making the assumption that there will end up being only one outcome.  Why are you discounting the possibility that a new universe is created for every outcome?  In that case, all IV estimates are true, in one universe or another.

[ERICOPOLY]

I live in one universe.

 

There has been one past, as there will be one future.

[ERICOPOLY]

Why, with multiple futures, is there but one past?

[JBird]

Ericopoly and Birdman, you seem to be making the assumption that there will end up being only one outcome.  Why are you discounting the possibility that a new universe is created for every outcome?  In that case, all IV estimates are true, in one universe or another.

 

As a man with a philosophy degree I can appreciate this comment. It's a moot point though; we are stuck in this universe.

 

Right, if the future is fixed and knowable, then there is only one IV.  If the future is unknowable, then it is better to assume a range of IVs.  If the future is not fixed and unknowable, then there exists a range of IVs.

 

First time I've seen a hypothetical syllogism used in the context of investing. I disagree about the truth of the premises though.

 

There is only one intrinsic value because there is only one future- one eventual outcome.

 

There are many logically possible outcomes though, and some are more likely than others.

[kmukul]

this might be interesting to the people...

Warren buffets intrinsic value calculation. it seems there are a bunch of videos by them to learn about buffets investing

[jay21]

There is only one intrinsic value because there is only one future- one eventual outcome.

 

I guess this is the assumption we are debating.  I am saying this is not true. 

 

There are many logically possible outcomes though, and some are more likely than others.

 

This is exactly my point.  Instead of thinking using the word probability, think of the phrase claim on future outcome.  A claim is clearly worth something. 

 

Returning to a coin flipping example, what would you pay for a coin flip where heads returns $100 and tails $0?  What you would pay and its inherent/intrinsic value does not depend on the outcome. 

 

Eric's and your stance is incredibly biased.  "This is what happened, therefore it is the only thing that could have happened, therefore the value of the business was $X." This is being results oriented.

 

The future holds only one IV.  Oh, you may deny it and instead talk about ranges and probabilities etc... but don't let lack of control frustrate you. 

 

What to look for in order to gain back a measure of control?  Attributes that accentuate your predictive powers:  for example, you can assume that diapers will still be in demand fifteen years from now, but you are less certain that a specific technology will not be replaced by a better one.  All the rest of the stuff that Buffett keeps trying to teach us...

 

 

How does thinking in terms of ranges of potential outcomes relate to "lack of control"?  I don't believe anyone asserted that they have control over which outcome is ultimately realized.

[racemize]

I really think all three of you are saying the same thing, just in different manners.  There is a range of possibilities, but only one outcome that ends up happening.  You can say it is inevitable or not, depending on your preference, but even if it were, it still isn't predictable by us.

[ERICOPOLY]

The future holds only one IV.  Oh, you may deny it and instead talk about ranges and probabilities etc... but don't let lack of control frustrate you. 

 

What to look for in order to gain back a measure of control?  Attributes that accentuate your predictive powers:  for example, you can assume that diapers will still be in demand fifteen years from now, but you are less certain that a specific technology will not be replaced by a better one.  All the rest of the stuff that Buffett keeps trying to teach us...

 

 

How does thinking in terms of ranges of potential outcomes relate to "lack of control"?  I don't believe anyone asserted that they have control over which outcome is ultimately realized.

 

That's a misunderstanding of what I was saying.  As there is only one past, there will only be one future (this statement was actually denied earlier on and the poster commented that instead there is a range of potentialities).  You can't probability weight all of the branches, too frustrating and your biases will lead you to assign probabilities as you see fit -- how reliable will your bias be?.  The illusion of greater control of course may contain negative utility.  The more complicated the tree, the more likely it won't have meaningful value to your powers of prediction as the probabilities of the entire paths across multiple decisions in the tree are multiplicative.  Thus to regain a measure of control you can apply Buffett's wisdom to prune the tree of avoidable mistakes (the kinds of mistakes that are made when your biases lead you to have confidence in predicting a given technology will last 10 years without being disrupted).

 

Work with simpler trees, put the more complicated ones in the "too hard pile" rather than spinning your wheels constructing them.

 

[Palantir]

I would say intrinsic value, like beauty, is in the eye of the beholder...

[mcliu]

Intrinsic value is the present value of future cash flows.

 

There's a distribution of intrinsic value because you cannot know for certain what future cash flows are.

 

You can use probabilities for each of the different possible cash flows that will accrue in the future and reach an estimated range/confidence interval of the intrinsic value of a business with some degree of confidence.

 

Unless there's only 1 possible path, like a risk-free fixed-coupon fixed-maturity bond, there's no single intrinsic value.

[ERICOPOLY]

There are multiple estimates of intrinsic value.  The presence of estimates to IV does not refute the existence of a single IV.

 

"Possible" suggests "it could be this, or it could be that, or it might be this other thing, or perhaps that other thing".

 

There are multiple "this".

There are multiple "that".

There is only one "it".   

 

People are effectively arguing that if there exist multiple possible guesses at the answer (most likely none of them exactly correct), then there cannot be one unknown precisely correct answer.  That's flawed logic.

[jay21]

People are effectively arguing that if there exist a range of answers that are dependent on future unknowable events.  There does not exist one precisely correct answer.

 

FYP

[JBird]

I really think all three of you are saying the same thing, just in different manners.  There is a range of possibilities, but only one outcome that ends up happening.  You can say it is inevitable or not, depending on your preference, but even if it were, it still isn't predictable by us.

 

+1

 

There are multiple estimates of intrinsic value.  The presence of estimates to IV does not refute the existence of a single IV.

 

"Possible" suggests "it could be this, or it could be that, or it might be this other thing, or perhaps that other thing".

 

There are multiple "this".

There are multiple "that".

There is only one "it".   

 

People are effectively arguing that if there exist multiple possible guesses at the answer (most likely none of them exactly correct), then there cannot be one unknown precisely correct answer.  That's flawed logic.

 

+1

 

 

[ERICOPOLY]

FYP

 

Let's try another approach.

 

There is one universe that we live in, but we do not know everything about it.  Only estimates and glimmers. 

 

Because we can only estimate it (and the estimates vary widely), you say there cannot be just one universe that we live in.

[boilermaker75]

There are multiple estimates of intrinsic value.  The presence of estimates to IV does not refute the existence of a single IV.

 

"Possible" suggests "it could be this, or it could be that, or it might be this other thing, or perhaps that other thing".

 

There are multiple "this".

There are multiple "that".

There is only one "it".   

 

People are effectively arguing that if there exist multiple possible guesses at the answer (most likely none of them exactly correct), then there cannot be one unknown precisely correct answer.  That's flawed logic.

 

 

There are not multiple possible guesses at IV, but multiple possible IVs. The wave function will collapse to one particular IV when the observation is made in the future, but this does not mean that IV was destined to happen.

 

Or in a many-worlds interpretation you might have BRK with a market cap of $1 trillion at some fixed point in the future in 60% of the universes, but BRK is bankrupt in 0.00001% of the universes.