Whenever the IV subject comes up, I think of Vornado. As pointed out in Snowball, Berkshire
once had a position in Vornado (not "Vornado Realty Trust" as described in the book..it was just Vornado then). As I recall, Buffett was even on the board for awhile, before he became discouraged and quit. His interest then was in the cigar-butt retail aspect of the company, which operated under the name Two Guys. Buffett finally got exasperated with the company, its board, and the business, and sold out the position at a relatively small profit. Sometime later, Vornado extracted itself from the sinking retail operations, closing Two Guys, and started redeveloping the real estate the stores were sitting on....after which the stock did quite well. BRK (and us copycats) sold out too soon, not even thinking we could realize any more IV than the retail cash flows. Anyway, IV is in the eye of the beholder.
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"INTRINSIC VALUE
Now let’s focus on a term that I mentioned earlier and that you will encounter in future annual reports.
Intrinsic value is an all-important concept that offers the only logical approach to evaluating the relative attractiveness of investments and businesses. Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life.
The calculation of intrinsic value, though, is not so simple. As our definition suggests, intrinsic value is an estimate rather than a precise figure, and it is additionally an estimate that must be changed if interest rates move or forecasts of future cash flows are revised. Two people looking at the same set of facts, moreover—and this would apply even to Charlie and me—will almost inevitably come up with at least slightly different intrinsic value figures. That is one reason we never give you our estimates of intrinsic value. What our annual reports do supply, though, are the facts that we ourselves use to calculate this value."
once had a position in Vornado (not "Vornado Realty Trust" as described in the book..it was just Vornado then). As I recall, Buffett was even on the board for awhile, before he became discouraged and quit. His interest then was in the cigar-butt retail aspect of the company, which operated under the name Two Guys. Buffett finally got exasperated with the company, its board, and the business, and sold out the position at a relatively small profit. Sometime later, Vornado extracted itself from the sinking retail operations, closing Two Guys, and started redeveloping the real estate the stores were sitting on....after which the stock did quite well. BRK (and us copycats) sold out too soon, not even thinking we could realize any more IV than the retail cash flows. Anyway, IV is in the eye of the beholder.
----
"INTRINSIC VALUE
Now let’s focus on a term that I mentioned earlier and that you will encounter in future annual reports.
Intrinsic value is an all-important concept that offers the only logical approach to evaluating the relative attractiveness of investments and businesses. Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life.
The calculation of intrinsic value, though, is not so simple. As our definition suggests, intrinsic value is an estimate rather than a precise figure, and it is additionally an estimate that must be changed if interest rates move or forecasts of future cash flows are revised. Two people looking at the same set of facts, moreover—and this would apply even to Charlie and me—will almost inevitably come up with at least slightly different intrinsic value figures. That is one reason we never give you our estimates of intrinsic value. What our annual reports do supply, though, are the facts that we ourselves use to calculate this value."
