A few other things:
1) Are you able to calculate the intrinsic value of a company?
2) Do you invest exclusively based on that?
3) Do you plan to share/comment your investing results like many other bloggers do?

Best,
Dom

Hi Dom! Good question! You have to calculate the “intrinsic value” of the stock and then compare it to the share price. What is intrinsic value? Intrinsic value is the present value of all the cash that the business will generate for its owners, from now into the future.

You can think of GE – or any company – as a machine. You put some cash into the machine today (e.g. buying equipment, machines, hiring people) and it spits out more cash back to you tomorrow (hopefully). It does this year after year – forever. All you have to do is figure out how much cash this machine will spit out for you each year and then add all of it up (discounting cash received in the future to a “present value” using time value of money). Easier said than done of course. Also hard to explain fully in this comment box.

If you’re unfamiliar with Time Value of Money, here’s a post I did a while back:
https://www.vintagevalueinvesting.com/vintage-value-101-the-time-value-of-money-or-the-genius-of-wimpy/

And this series of posts explains how to calculate intrinsic value:
https://www.vintagevalueinvesting.com/value-investing-101-intrinsic-value-part-1/

The P/E ratio is a good rough metric that you can look at, but it doesn’t tell us the whole story. It uses earnings (aka net income) which is an accounting measurement that usually doesn’t reflect the actual cash generation of a business (which we would call “Free Cash Flow”). For example, GE’s P/E ratio is super high right now (200+) because of some accounting charges related to the sale of their finance division, which has caused GE’s net income to be negative. But this is just on paper. GE’s Free Cash Flow is still positive and its cash generating ability hasn’t changed.

Let me know if that answered your question or if you have any others!

Best,
John

What metrics would you be looking at doing your bottoms-up fundamental analysis, to eventually come up with the “value” that you can compare to the stock price?
Can you describe it using General Electric (high P/E, but still something I own) as an example?
(If you already have a post on this topic a link is perfect)

Thank you,
Dom