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The key to Warren Buffett's approach to value investing is the concept of intrinsic value. He focuses on finding companies that are undervalued but have strong fundamentals and growth potential. He uses a company's free cash flow and the compounded 'windage growth rate' for eight years to calculate the intrinsic value. This approach helps him determine how many years it will take to get the whole purchase price back. He believes in long-term investment and prefers to hold onto his investments for as long as possible.
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This calculation is based on the company's free cash flow and it does take growth into account. It calculates how many years it will take to get your whole purchase price back: free cash flow, grown by the compounded 'windage growth rate' for eight years. To calculate free cash flow, go to the Cash Flow Statement and add together the lines called 'net cash provided by operating activities,' 'purchase of property and equipment' (again, a negative number but you add it), and any 'other capital expenditures for maintenance and growth' (also a negative number).
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Do you long for the day when you can work less and travel more? Do you fear that you’ll never have enough money to be able to retire? By following War...
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