Vic
Regardless of what method you use, if you don't compare to current market price, how do you know whether or not it's currently over/under valued?
A ratio (or its inverse, a
yield) is just indicating what a business is currently (or generally
prospectively) generating relative to price. If you think the business is currently generating too little relative to price (ie PE is too high, or yield is too low), then the implication is that the intrinsic value is less than the current price.
If you can dream up a PE or yield (or whatever ratio) at which you would be eager to buy, then you have identified the intrinsic value (as deemed by you).
Montgomery likes to portray intrinsic value as some kind of mistical thing that can only be ascertained via a special a secret black box (for a fee). Well, intrinsic value is just the price at which you reckon it would be good buying. Period.
As
@madamswer is indicating, talk is cheap. Generally I would be suspicious of anyone that claims to offer the one true method.
Best thing, I think, is to try to understand the principles behind the method, and try to adapt to suit yourself (or ignore).
