By
Borsgade
In an interview with The Motley Fool, Bill Nygren explains why it is important to buy a stock at a discount to its intrinsic (intrinsic) business value, as it reduces risk and amplifies the potential reward.
He believes that stocks will trade reasonably close to intrinsic business value most of the time, so buying at a discount to intrinsic value means that the expected terminal value is a higher than the real business value. This reduces risk because the investor is less likely to lose money if the stock price falls.
Efficient market theorists will say that regardless of the price you pay, you can get a fair return relative to the risk you incur. However, if you believe as we do, that most of the time a stock will trade reasonably close to intrinsic business value, then buying at a discount to business value beats a mostly efficient market.
By purchasing at a discount to value, risk is reduced because the expected terminal price is a higher percentage of business value. Further, reward is amplified for the same reason, the terminal value is a higher percentage of business value. The efficient market hypothesis would say that an investor’s holding period return should roughly match the change in business value during that time.
To that, we add the increase in price due to the gap closing between initial price and initial value. Note that paying more than business value has exactly the opposite effect.
Share the news
The above has been prepared by Børsgade ApS for information purposes and cannot be regarded as a solicitation or recommendation to buy or sell any security. Nor can the information etc. be regarded as recommendations or advice of a legal, accounting or tax nature. Børsgade cannot be held liable for losses caused by customers’/users’ actions – or lack thereof – based on the information in the above. We have made every effort to ensure that the information in the above is complete and accurate, but cannot guarantee this and accept no liability for errors or omissions.
Readers are advised that investing may involve a risk of loss that cannot be determined in advance, and that past performance and price development cannot be used as a reliable indicator of future performance and price development. For further information please contact info@borsgade.dk
In his 2025 Annual Investor Presentation, Bill Ackman provides his view on Pershing Square Holdings (PSH) strategic roadmap. Bill also shares his in depth thoughts on the portfolio and key business developments in the companies he owns such as Nike, Brookfield and Uber.
In this interview, British investing icon Terry Smith, the manager of the UK’s largest stock fund Fundsmith, shares his lessons after a lifetime of investing. Terry delves into the skills, personality traits, and principles that propelled him from humble beginnings to the top of the investing world.
In his recent article, NYU professor Aswath Damodaran discusses the disruptive entry of DeepSeek, a Chinese AI company, into the artificial intelligence (AI) landscape and its implications for the broader AI narrative.
In this article, AQR assess the assumption built into today’s market and what that likely will mean for forward returns. These insights aim to guide investors in setting realistic medium-term (5-10 years) expectations while emphasizing the importance of valuation discipline and diversification in navigating compressed risk premia across asset classes.
