Value?

Its quite a subjective topic, but what is Value? Well it can be viewed in multiple ways:

When I was growing up, my mother stayed at home looking after myself and my four brothers, my father worked offshore as SubSea engineer. As the Oil and gas industry can be of cylical nature, there were incentive for oil companies to employe the majority of the staff on short terms contracts. so, work was never really stable for my father. This brought issues in terms of cashflow into the family dynamic, mix that with alcoholic tendancies and you have a dynamic which could only result in a poor outcome. Anyway, how does this relate to value? well.. See this dynamic at a young age, and watching my father and mother going through divorce at a young age (11 years old). I knew my mother or father didn't have any money and the money was tied up into a property which the month payments were few and far between. To make pocket money, In started selling convetionary items in school and anything I could get my hands on. I then stepped up my game, I and started attending Car boot sales and buying old games consoles and selling them on ebay for a reasonable margin. I found it bizzare at a young age, that people were willing to sell £1 for 50-60p as they didn't understand the true value.However, a year or so it soon faded, as I was picked on by a lot of friends because someone who goes to a carboot is seen as poor and someone in their middle teens just wants to be liked. I guess I felt the true cost of being a contrarian at a young age, but It never really did fade,I still hold that mentaility when selecting stocks. I search the stock market like I used to search Carboot for undervalued Items I could flog in school or on Ebay.

The famous Quote from Warren Buffet: "Price is what you pay and value is what you get" but how do you summerise value in terms of stock valuation? Well one could say the stock market represents three seperate categories of business: approximately stable intrinstic value, those that shrink in intrinsic value due to inflation and ones that steadily grow their intrinsitc value. If I was picking a stock best on the function of value it would be the latter, but then we ask the question how do we determine wether the business steadily growing its intrinsic value over time?we could look at the Price to Earnings Ratio and the Earnings yield ( inverse of the P/E) but that could deceptive..So, how do you determine the price to value of a stock? I prefer to look at the Enterprise Value/ EBITDA because it shows the true eanrings potential of a company. However, the way in which an investor can calculate enterprise value is subjective with a need for holistic judgement made by the investor and their view on the Debt side of the company. therfore, understnading the business, how it generates free cash flow and services its debt through operations is key to understnading the intrinsic value. Personally, I don't think debt issues, financial troubles or anything along those lines should hinder the potential of a business with a complicated business model or an alternative way of making money. In addition, there is the option to go for warren Buffets favoured shares, buying companies which are selling at roughly 60% of net value with a high return on capital , but these are business to find on a day to day basis.

Coming from a Science background rather than a finance, I have a need to understanding the functional parts of each individual system, and this plays into the invesment approach, because estimating the differnetial between intrinsic value and the current price will not only offer a margin of safety but it the investor confidence to buy the share with confiction and buy more if was to drop further...