Moats, Money, and the Magic of Intrinsic Value

 Investing is often painted as rocket science, full of formulas, graphs, and jargon. But at its heart, it boils down to a few timeless principles. Let’s unpack them in plain, fun, yet professional terms.

1. Price vs. Value: The Eternal Distinction

The market flashes prices at us every second. But as Warren Buffett wisely said, price is what you pay; value is what you get. A $5 coffee might be overpriced or a steal depending on what you believe it delivers. Stocks are no different. The ticker shows the price—but the real question is, what is the underlying value?

2. Anchored by Intrinsic Value

In the short run, markets can be wild—like a toddler on a sugar rush. But over the long run, prices inevitably gravitate toward intrinsic value. That’s the anchor. The challenge? Intrinsic value isn’t printed on a stock chart. You have to estimate it.

3. What Is Intrinsic Value Anyway?

Think of intrinsic value as the present value of all the cash a company will generate over its lifetime. Not just next quarter, not just next year, but its entire economic journey. We bring those future cash flows into today’s dollars using a discount rate—because a dollar today is worth more than a dollar tomorrow.

4. Intrinsic Value = Earning Power + Moat

At the core, intrinsic value reflects a company’s ability to generate and grow cash sustainably. That sustainability rests on one word: moat.
A moat is what protects a business from competitors—be it brand power, network effects, patents, or cost advantages. Without a moat, profits are temporary. With one, they compound.

5. Precision Isn’t the Point

Here’s the beauty: you don’t need to be pinpoint accurate in calculating intrinsic value. Investing isn’t surgery. What matters most is judgment—can this company defend and expand its moat? The second key factor is the discount rate, which ebbs and flows with the macro environment (think interest rates and inflation).

6. Two Roads to Wealth

So how do you actually make money from all this? Two main paths:

  • Arbitrage: Buy a company well below its intrinsic value and wait patiently for the price to snap back.

  • Compounding: Buy a great business with a strong moat that grows intrinsic value year after year.

And if you find a company that checks both boxes—a wide moat and a temporary bargain—you’ve struck investing gold.

Final Thought:
Investing isn’t about predicting the next market swing. It’s about understanding businesses, their moats, and the cash they can generate over time. Anchor yourself in intrinsic value, and you’ll avoid getting swept away by market noise. By the way, here is a tool demonstrating how to calculate intrinsic value using DCF model and this tool unified all the models provided by the Intrinsic Value Newsletter.

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