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Tools

In this section, I have created some calculators so you can perform your own calculations similar to those I use in my analysis. Remember, there is more to buying stocks than just calculations, but this should help you get an idea of what price could be beneficial for stocks. There are three different calculators that calculate prices based on different metrics. I would advise you to calculate all three aspects of a given stock.

The first method for calculating a price when opening a position is to determine the fair value of a company (also known as the intrinsic value) and then apply a margin of safety. Ideally, the margin of safety should be 50%. Ideally, if we determine that the intrinsic value of a company is to be $100, we would aim to buy it for $50.

The Margin of Safety Calculator

The second method of calculating a price is by determining the capitalization rate. A capitalization rate (cap rate) is essentially the annual rate of return that an owner of a company (or stock) receives on the purchase price of the company (or stock). Warren Buffett refers to this as "Owner earnings," which represent the cash flow generated by the business each year without impacting its operations. This would need to be at least 10%.

The Ten Cap Calculator

The third method of calculating a price is known as payback time. The term "payback period" refers to the number of years it takes to recoup your investment. It shouldn't take more than 8 years to recover it through the compounded growth rate.

The Payback Time Calculator

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