Benjamin Graham’s Intrinsic Value Calculator
Published 09/06/2023 by
Andrew Latham
Summary:
You can use the calculator below to calculate the intrinsic value of a stock based on Benjamin Graham’s formula. However, remember that Graham didn’t recommend using this formula. He simply provided it as a way to approximate the valuation methods popular in his time and to illustrate how unrealistic market growth expectations tend to be.
This calculator uses the formula: Intrinsic Value = Earnings per Share (EPS) x (8.5 + 2 * Expected Annual Growth Rate)
Benjamin Graham’s updated intrinsic value calculator
This calculator used the formula: V = {EPS x (8.5 + 2g) x 4.4} / Y. It takes into account the minimum return Graham was willing to accept for the risk of investing (4.4) and the return provided by 20-year AAA corporate bonds (Y).
One of the most recognized formulas associated with Graham is V = EPS x (8.5 + 2g). However, it’s important to understand that Graham mentioned this formula in “The Intelligent Investor” only briefly, intending to illustrate the fallacy in market growth expectations.
Graham explicitly provided two warnings for this formula.
- Firstly, he clarified that it does not offer a genuine intrinsic value for stocks.
- Secondly, he emphasized that the formula should be seen only as an illustrative tool, highlighting that growth rate projections are often unreliable.
Unfortunately, this formula is often misapplied today, largely due to its misrepresentation in recent editions of the book.
Key takeaways
- Benjamin Graham’s Intrinsic Value Formula emphasizes rational valuation over market sentiment.
- The formula incorporates EPS, expected growth rate, and margin of safety to calculate intrinsic value.
- It minimizes risks, encourages long-term perspective, and fosters objective decision-making.
- Adaptations are necessary due to evolving market dynamics and complex businesses.
- Modern investors combine the formula with other metrics for comprehensive assessments.
Andrew is the Content Director for SuperMoney, a Certified Financial Planner®, and a Certified Personal Finance Counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.
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