Intrinsic Value

Intrinsic value is the discounted value of all the cash a business can pay out to its owners over the rest of its life, which means it's an estimate of what the business is actually worth, separate from whatever its stock happens to trade for on a given day.

This is the core distinction the whole discipline rests on: price is what the market charges you today, value is what the underlying business is actually worth, and those two numbers are related but they are not the same thing, and they can drift apart for long stretches of time. A stock's price moves every second the market is open. The business behind it doesn't change nearly that often.

Weighing versus voting

Benjamin Graham's framing for this is the clearest one: in the short run, the market is a voting machine, tallying up popularity, sentiment, momentum, whatever story is loudest that week. In the long run, it's a weighing machine, and eventually the actual substance of the business, its cash flows, its durability, gets reflected in the price whether the crowd wants it to or not. The voting machine can be wrong for a surprisingly long time. The weighing machine eventually wins.

Say a company's stock triples in a year on excitement about a story that hasn't produced any actual cash yet. The voting machine loved it. Whether the weighing machine agrees depends entirely on whether real cash eventually shows up to justify that price, and that gap between story and cash is exactly what intrinsic value is trying to measure.

A range, not a point

Intrinsic value is never a single precise number, and treating it like one is a mistake in itself. It's a range, built from estimates about future cash, growth, and risk, all of which are inherently uncertain. Two careful people can look at the same business and land on honestly different ranges, and both can be reasonable. The goal isn't to nail an exact figure, it's to have a defensible range and only act when the price sits well outside it. That gap between price and your estimated range is where a margin of safety actually comes from.

• Separate price (what the market says today) from value (what the business will actually pay out over time).
• Build a range, not a single number. Precision here is usually false precision.
• Expect the voting machine and the weighing machine to disagree for a while before they don't.

People usually get this wrong by backing into a number, deciding what they want a business to be worth and then reverse-engineering assumptions to get there. That's not valuation, that's rationalization with a spreadsheet attached.