Retail brokerages have made it possible for anyone to invest in stocks from their phones for...

 

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Retail brokerages have made it possible for anyone to invest in stocks from their phones for free. This has created a culture of people who expect unrealistic returns from stocks such as GameStop, Rivian, and Lucid (Asim, 2023). These investors fail to realize that even though a stock price can be manipulated, the fair price of a stock is ultimately driven by the company's intrinsic value. Warren Buffet defines intrinsic value as "the discounted value of the cash that can be taken out of a business during its remaining life" (Huynh, 2022). Buffet's first approach to valuing a stock is to calculate the owner's earnings as follows: Owners' Earnings = EBIT or Operating Profit + Depreciation and Amortization - Capital Expenditure. (Huynh, 2022) Then, the growth rate of the company needs to be estimated. It is important to take into consideration a company's advantage and the owner's earnings growth over the years (Huynh, 2022). Even though there is no concrete way of calculating intrinsic value, the previous factors are helpful for evaluating a company's future performance. Retail brokerages have made it possible for anyone to invest in stocks from their phones for free. This has created a culture of people who expect unrealistic returns from stocks such as GameStop, Rivian, and Lucid (Asim, 2023). These investors fail to realize that even though a stock price can be manipulated, the fair price of a stock is ultimately driven by the company's intrinsic value. Warren Buffet defines intrinsic value as "the discounted value of the cash that can be taken out of a business during its remaining life" (Huynh, 2022). Buffet's first approach to valuing a stock is to calculate the owner's earnings as follows: Owners' Earnings = EBIT or Operating Profit + Depreciation and Amortization - Capital Expenditure. (Huynh, 2022) Then, the growth rate of the company needs to be estimated. It is important to take into consideration a company's advantage and the owner's earnings growth over the years (Huynh, 2022). Even though there is no concrete way of calculating intrinsic value, the previous factors are helpful for evaluating a company's future performance.