- Financial Fluency
- Posts
- Three Ways to Value Anything
Three Ways to Value Anything
How studying intrinsic value shaped my business — and built Buffett’s billions
Iain Shirlaw
May 16, 2025
In partnership with
Welcome to Financial Fluency - a newsletter designed to boost your understanding of financial terms and provide you with investment ideas for long-term financial success.
In today’s newsletter:
A Look at the Markets: S&P 500
Three Ways to Value Anything
Quote of the Day: Warren Buffett
What I’m Watching: Charles Schwab - Intrinsic Value
Word of the Day: Intrinsic
Whenever you are ready, here is how I can help you
Looking for unbiased, fact-based news? Join 1440 today.
Join over 4 million Americans who start their day with 1440 – your daily digest for unbiased, fact-centric news. From politics to sports, we cover it all by analyzing over 100 sources. Our concise, 5-minute read lands in your inbox each morning at no cost. Experience news without the noise; let 1440 help you make up your own mind. Sign up now and invite your friends and family to be part of the informed.
A Look at the Markets: S&P 500
S&P 500 July 2021 - May 2025 (Weekly chart)
The chart shows the S&P 500 index from July 2021 to May 2025.
The weekly chart clearly shows the negative effect of President Trump’s tariffs from late February and the recovery as some of the tariffs were reduced and trade deals introduced (for example a partial trade deal with the UK).
Three Ways to Value Anything
How studying intrinsic value shaped my business — and built Buffett’s billions
My first business was buying motorsport cars and breaking them down (taking them apart) to sell for parts.
How was this a profitable business?
Quite simply, the value of the individual parts, even second-hand, was higher than the value of the complete car. I used the fact that the 'intrinsic value' of the cars was often higher than the 'market value'.
Intrinsic Value
Last week, I mentioned 'intrinsic value' in one of the Warren Buffett quotes that we examined.
"While many investors sell during market corrections, Buffett views these times as opportunities for buying. He understood that investors should not be driven by emotions such as fear and greed. Buffett makes his buying decisions on intrinsic value, which we will examine in more detail next week."
Let's examine 'intrinsic value' in more detail.
Definition - Investopedia
According to Investopedia, the definition of intrinsic value is as follows:
"Intrinsic value is the real value of an asset based on fundamental factors, rather than the price set by the market."
An Analogy - A Gold Ring
To help understand this concept better, let's use a simple example.
Let's say you own a gold ring. There are at least three ways to value this ring: intrinsic value, market value, and personal or sentimental value.
The intrinsic value of the ring is the value of the raw materials if it were melted down and sold. This would be the gold and any gemstones.
The market value is what someone is willing to pay for it as a piece of jewellery. This is often higher than the intrinsic value because it includes the value of the materials plus the craftsmanship, design and possibly brand (like Tiffany's).
The sentimental value is the personal value that the ring holds for you. This could be extremely high, and you may not want to sell it at any price - for example, if it were your mother's engagement ring. Such an item is termed 'invaluable'.
Note: 'Invaluable' does not mean that an item has no value. It is not the opposite of 'valuable'. It means that it is impossible to put a price on it for you. For example, family photos usually have very little market value but may well be invaluable to you.
To sum up, the intrinsic value is just the base material worth (the gold and gems as scrap), the market value reflects what someone would pay for the finished piece, and the sentimental value is the unique, personal attachment you have to the item.
Valuing a Company
Valuing a company is more complicated than valuing a gold ring. A business valuation will include:
Tangible assets - physical things you can touch such as buildings, machinery, equipment, stock
Intangible assets - non-physical assets like brand name, patents, customer loyalty, network effects (e.g. Amazon, Facebook)
Future profits or cash flow - money the business is expected to make in the future
Valuing My First Business
I used these principles when I bought my motorsport business in 1991.
The tangible assets and stock were the easiest things to value. The information was not available on the internet back then, but machinery and tools could be valued from trade magazines.
The stock was valued as a percentage of the selling price.
The intangible assets (mainly customer loyalty) were valued as a percentage of turnover (sales). I used profits to give an overall valuation of the business.
Intangible assets and the valuation of future profits are subjective.
Definition - Warren Buffett
Now that we have a basic understanding of intrinsic value, we can examine how Warren Buffett uses it to value companies. His definition is as follows:
"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"
To fully understand intrinsic value we need to examine the ‘discounted value of the cash’, which we will do in next week's newsletter.
Conclusion
Understanding intrinsic value helps investors like Warren Buffett make smarter investment decisions. By focusing on what something is truly worth rather than its current market price, investors can find opportunities when markets are driven by emotions like fear or excitement.
As always, none of this is financial advice. Everyone should invest according to their personal circumstances, risk tolerance and financial goals.
Quote of the Day: Warren Buffett
Warren Buffett
What I’m Watching: Charles Schwab - Intrinsic value
Word of the Day: Intrinsic
Intrinsic - adjective - being an extremely important and basic characteristic of a person or thing.
From Latin "intrinsecus" meaning "on the inside, inwardly" - belonging naturally; essential; inherent; not dependent on external circumstances.
The company's strong balance sheet and consistent revenue growth are intrinsic factors that support its high valuation.
Context and Usage: The term intrinsic is used across multiple fields including science, philosophy, medicine, and economics. It describes qualities or properties that belong to the very nature or essence of something, rather than being applied, taught, or acquired from outside. The opposite concept is "extrinsic," referring to external or acquired characteristics.
Common Collocations:
Intrinsic value - the real worth of something based on its basic qualities
The intrinsic value of this stock is higher than its current market price.
Intrinsic quality - a natural feature or characteristic
Reliability is an intrinsic quality that customers look for in our products.
Intrinsic motivation - the desire to do something because you enjoy it, not for rewards
Many employees show intrinsic motivation when they find their work interesting.
Intrinsic benefit - an advantage that naturally comes with something
Learning new skills is an intrinsic benefit of working on this project.
Business Example: When buying a company, investors look at both its current profits and its intrinsic strengths, such as its customer base, brand recognition, and market position.
Bitcoin Context: Debates continue about whether Bitcoin has intrinsic properties that give it value beyond market speculation, with proponents pointing to its mathematical scarcity and utility as a payment network.
Whenever you are ready, here is how I can help you:
We provide Business English lessons and Cambridge and IELTS preparation courses. You can book an online lesson over Zoom here:
You can book a free 20-minute consultation with Iain over Zoom here:
Why not subscribe to our sister Business Fluency newsletter for English students interested in understanding essential business terms and concepts and providing you with practical strategies to boost your business and career prospects?
Tell us what you thought of this newsletterYour opinion is important to us. You can also suggest topics for future newsletters and ask Financial questions. |
Disclaimer:
This newsletter is for informational and educational purposes only and should not be construed as financial advice. The information contained herein is generic and does not take into account your individual financial circumstances. You should always consult with a qualified financial professional before making any investment or financial decisions.
Additionally, the authors and/or publishers of this newsletter may hold investments in securities or other financial instruments mentioned herein. These are included for illustrative purposes only and should not be taken as a recommendation to buy or sell such securities or financial instruments.