Re: Buy Good Value and/or What Other People will Like?
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I feel like you're calling growth of the business (like revenue growth) growth in intrinsic value. The intrinsic value should account for revenue growth already. Basically what I'm saying is that barring any material changes to the business the intrinsic value should not change.
Are we just using different terms here or do you disagree with that?
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Intrinsic value should grow over time for most businesses. Take a business (ABC corp) that earns $1 per share today, and always earns 15% on capital reinvested in it's business. If it reinvests the $1, then next year earnings should be $1.15. Because of the higher earning power, IV should be 15% higher next year (assuming that the ROE doesn't decline and no other material changes to the business happens).
You might think IV for ABC corp is around $15-$20 (15-20 PE) today because you don't think it has any barriers to continued growth for a long time. And lets say it's trading for $10 (10x PE) so you decide to "load up". My point was when it earns $1.15 next year and still trades at a 10x PE, that means it went up 15%, so the growth in IV has compensated you, even though it's discount to IV has remained the same. You would probably be happy owning it for many years even if it stays at a 10 PE, as long as earnings kept growing 15% per year, because effectively your shares will compound at 15% while waiting for that catalyst.
You don't need a catalyst to bring it to a 20 PE (though when that happens you will be doubly rewarded).
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