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You've got a magic number there: 12. It can't be an "intrinsic" value unless you can justify why 12 is the appropriate multiplier. The value of the float is
by prewett 8y ago
You've got a magic number there: 12. It can't be an "intrinsic" value unless you can justify why 12 is the appropriate multiplier.
The value of the float is at least the value of it invested in Treasuries, I would think.
- tim333 8y agoAll investment analysis with future cash flows implicitly assumes a similar magic number - the PE ratio or discount rate or some equivalent. 12 is appropriate if you assume a discount rate of 8.3%.
- johnwheeler 8y agoYes, this is right. I chose 12 because that was a maximum bound Benjamin Graham used in his analysis IIRC. Though, stocks have gotten more expensive on a relative-basis in the last 40 years, so a more appropriate multiplier might be 13 or 14.
- johnwheeler 8y ago> The value of the float is at least the value of it invested in Treasuries, I would think. No because the float is actually a liability for paying claims. The company doesn't own the float, but they can use it like an interest free loan. And, in fact that might be a good way to value it. The cost of what would be interest payments at whatever the prevailing rates are.