Executive summary
Market prices move daily; the value of a business typically changes slowly. Value investing rests on estimating intrinsic value independently of price and acting only when price offers a sufficient margin of safety. This note outlines a repeatable process and its limitations.
Key findings
- 1Intrinsic value is an estimate, best expressed as a range rather than a single number.
- 2A margin of safety protects against errors in analysis and unforeseen events.
- 3Estimating value before checking the market price reduces anchoring bias.
A repeatable process
- Understand the business. How does it make money, and what protects its returns?
- Estimate normalised owner earnings — cash the business can distribute without impairing its position.
- Value the cash flows using a discounted cash flow, conservative multiples, or both.
- Express value as a range with a pessimistic, base and optimistic case.
- Only then look at price, and require a discount to the base case.
Connecting to the library
This framework draws directly on ideas summarised in the TIC Knowledge Library — The Intelligent Investor and Margin of Safety.
Try the TIC Basic DCF Calculator to see how sensitive value is to the discount and growth rates you choose.
Investment considerations
Write down your value range and key assumptions before buying; revisit them when facts change rather than when price changes.
Risks and limitations
Value estimates can be wrong; prices can remain below estimated value for long periods.
Methodology
Process framework; no securities are analysed.
Facts, assumptions, estimates and opinions
TIC labels the nature of each material claim so you can weigh it appropriately.
- OpinionEstimating value before looking at price leads to better decisions.
- Verified factThe concept of margin of safety was popularised by Benjamin Graham.
Sources and references
- 01The Intelligent Investor — Benjamin Graham, revised edition 1973
Downloads
A downloadable PDF edition of this research has not been published yet.
