IFB52: The Art of Finding Undervalued Stocks

Alright, folks well welcome to Investing for Beginners podcast. This is episode 52 Andrew and I are going to talk about balancing the art and science of intrinsic value.
Today we’re going to talk a little bit about intrinsic value, one of my favorite subjects and Andrew’s as well and this should be a little bit of fun so Andrew why don’t you go ahead and start us off.
Andrew: yeah sure so basically you know we’ve been doing that back to the basic series this one’s going to be admittedly pretty technical so if you’re not as far along maybe skip this one save it for later go back to the back to the basic series. But this is going to be for those of you who are following along starting to look at the intrinsic value of companies trying to figure that out for ourselves and figure out how can we determine when the stocks undervalued when it’s overvalued and really just try to take that process to the next step.
Because on one side it sounds really easy to say just buy low sell high it’s really easy to say buy with a low p/e only to say it’s easy to say a lot of those things but when you really get down to it there’s a just a myriad of different ways you can evaluate intrinsic value.
Same with evaluating the margin of safety and when you just talk about value investing, in general, there’s so many moving parts and so I think it’s important for us to kind of just discussing the whole beast so to say so.
I remember when I first started out and when I was doing the blog and stuff I interviewed Jae Jun from Old-School Value and it was a great interview it’s up on YouTube still if people want to go check it out. But he basically talked about the fact that there’s a science and an art to value investing and so that’s really key and a lot of times when people talk about it they talk about the quantitative side versus the qualitative side.
You know the quantitative of just looking strictly at the numbers whereas the qualitative or things like you know things you can’t really use numbers to evaluate. So things like how’s the integrity of management how is the business kind of going along what ‘s the corporate structure look like what’s the corporate culture look like how are the competitive advantages as they as you kind of speculate them outside of a numerical market share type thing.
Yeah I mean you could go on and on and on but we’ve definitely had a couple episodes about focusing on the quant episode 10 was an example of one of those we did. Episode 12 we kind of talked qualitative stuff but I think about the art of valuation in terms of value however you want to say that to me it’s more I’m not talking about getting into the art and referring to it as a qualitative thing.
I still kind of don’t lean that way if that makes sense what I want to do is take the numbers figure out what that whole picture is and then instead of trying to break it down to an exact science. We’re looking at a business and saying you know what this business earns this much has this much cash flow as it has these many assets therefore this business is worth blank like 75 dollars a share.
I think that’s kind of going overboard on the quant stuff and on the science part of it I think where the art part comes in is where you kind of need to look at okay maybe this stocks more generally valued around sixty to ninety and you know whatever that range maybe I mean that’s a very loose range it’s obviously not going to be that maybe that loose of a rang...