Intrinsic Value Basics

[(bb)]

Theoretically and practically, the value received for owning a business or a security is the dollar return amount received over time from your investment. 

That return may come
- as a single payment at the end of the ownership period for selling the stock or business,
- as payments at regular intervals during ownership, or
- (often) as a combination of the two.

But growth and time value of money have a major impact on the final valuation of equity investment returns.  In fact, intrinsic valuation is a lot about assessing the effects of future growth on future returns and then assigning a present value to those returns.

[(bb)]

The following "how" questions can guide the appraisal of business returns.

How much?
How soon?
How long?
How consistent?
How valuable?

[(bb)]

How much?

How many dollars of return will the business produce, either to distribute to shareholders or to invest productively in the business?

Key drivers are profitability and growth rates - and the collection of business factors that drive that profitability and growth.

[(bb)]

How soon?

Big payoffs are nice, but if you have to wait 30 years for them, they aren't as valuable.  Remember the time value of money.

If two companies produce the same return, but one does it sooner, that company has more value because those dollars can be reinvested elsewhere sooner for more return.

[(bb)]

How long?

Although future returns have less value than current returns, they do have substantial value; and 20, 30, or 50 years of those returns can't be ignored, particularly in a profitable, growing business.

[may-i-know]

are you the "bb"?

why now become "(bb)"?

[(bb)]

How consistent?

A company producing slow, steady growth and return is usually more valuable than one that's all over the map.

A greater variability, or uncertainty, around projected returns calls for more conservative growth and/or discounting assumptions.

[stockraider]

are you the "bb"?

why now become "(bb)"?

This one is a fake bb...!
But quite knowleadgeable loh...!
Just like in the movie....when the super hero...disappear or faded....alot of admirers....will try to emulate....the super hero loh...!

[may-i-know]

This one is a fake bb...!
But quite knowleadgeable loh...!
Just like in the movie....when the super hero...disappear or faded....alot of admirers....will try to emulate....the super hero loh...!

but "bb" is still here ma...

[(bb)]

How valuable?

Finally, after assessing potential returns (how much, how soon, how long, how consistent), you must assign a current value to those returns.  

That value is driven by the value of the investment money as it may be used elsewhere. A return may look attractive - until the investor realizes that he or she can achieve the same return with a bond or a less risky investment.

Valuing the returns involves discounting (using a discount rate) to bring future returns back to fair current value.  The discount rate is your personal cost of capital - in this case, the rate of return you expect to deploy capital here versus elsewhere.

[stockraider]

The following "how" questions can guide the appraisal of business returns.

How much?
How soon?
How long?
How consistent?
How valuable?

Valuation of equity is not like valuing....bonds...loh...!
They is alot more judgement & assumption..........so cannot be ..........so predictive accurate bcos of uncertainty....therefore raider is happy with 70% accuracy loh...already boleh pakai loh...!

[(bb)]

Sooner isn't always better.

A business producing quick, short-term bucks may not be more valuable than one that produces slow, steady growth.

The quick-bucker may be cyclical and go through years of diminished or even negative returns.  Even though the quick-bucker produces a lot of value in the first few years, that may not be better than sustained growth and value produced later on by the slower, steadier comapny.

The quick-bucker may be relying on a technology or some other competitive advantage that could dissipate or dissapper altogether.  Likewise, a company with a long-term and sustainable advantage, sometimes known as a "moat" keeping competitors away, may beat a company with very high but only short-term returns.

[(bb)]

Bottom line:

It's a combination of how much, how soon, how long, and how consistent. 
The tortoise often beats the hare.

[stockraider]

Valuation of equity is not like valuing....bonds...loh...!
They is alot more judgement & assumption..........so cannot be ..........so predictive accurate bcos of uncertainty....therefore raider is happy with 70% accuracy loh...already boleh pakai loh...!

Those who cannot "remembered" !.........Not remembered on his own perils loh...!
Your parent or wife will forgive your own mistake....but stock market never will !
$$$$$$$$$$$$$$$$ loss mah...!

[stockraider]

Bottom line:

It's a combination of how much, how soon, how long, and how consistent. 
The tortoise often beats the hare.

Taking advantage...of Mr Market stupid....valuation....may be better than searching a good stock sometimes..!

[penton]

aiya...all these theories...is like one bamboo hit one boat of pple.....  

[SEA PEN]

JUDGEMENT JUDGEMENT JUDGEMENT

what make a doctor make a better judgement compare to another collegue ?
1. related knowledge
2. compentency area
3. experience

[stockraider]

JUDGEMENT JUDGEMENT JUDGEMENT

what make a doctor make a better judgement compare to another collegue ?
1. related knowledge
2. compentency area
3. experience

According to investor book 101....most doctor lousy investor ?
Why ah ?

[SEA PEN]

According to investor book 101....most doctor lousy investor ?
Why ah ?

1. apply unrelated knowledge
2. wander outside their compentency area
3. inability to learn from experience

Luckily leno quickly retired from doctor ... now the doctor curse canot follow leno lorr ...

[stockraider]

1. apply unrelated knowledge
2. wander outside their compentency area
3. inability to learn from experience

Luckily leno quickly retired from doctor ... now the doctor curse canot follow leno lorr ...

They say....ex-despatch boy...got good investor potential loh...!
But setback....for most despatch boy....is no money loh...!

[SEA PEN]

They say....ex-despatch boy...got good investor potential loh...!
But setback....for most despatch boy....is no money loh...!

leno bump into management first (form 4) before becoming a doctor ...
so management will always be leno first love ...

[stockraider]

leno bump into management first (form 4) before becoming a doctor ...
so management will always be leno first love ...

One important...criteria...for super investor...is ability to focus loh...!
Macam Esso.......Rm 3, 4, 5, 6................but super investor.........focus esso Rm 10.00....sure eventually ESSO Rm 10.00 loh..!
Don kasi jual ESSO Rm 4, 5,6,7, 8, 9...! Sure Rm 10.00....why short change leh ?

[simplesoul]

1. apply unrelated knowledge
2. wander outside their compentency area
3. inability to learn from experience

Luckily leno quickly retired from doctor ... now the doctor curse canot follow leno lorr ...

some habits die hard lor!!!!
 

[SEA PEN]

One important...criteria...for super investor...is ability to focus loh...!
Macam Esso.......Rm 3, 4, 5, 6................but super investor.........focus esso Rm 10.00....sure eventually ESSO Rm 10.00 loh..!
Don kasi jual ESSO Rm 4, 5,6,7, 8, 9...! Sure Rm 10.00....why short change leh ?

can touch RM 10 or RM 15 ... is different issue lor ...
but eps RM 1.70 .. price RM 5.00 ... must buy lor ...

[stockraider]

They say....ex-despatch boy...got good investor potential loh...!
But setback....for most despatch boy....is no money loh...!

For ALL ASPIRING DESPATCH BOY INVESTOR.
NEVER LET FAITH CONTAIN & CONTROL U
U SHALL AND WILL OVERCOME IT TO BECOME THE BEST INVESTOR LOH
LET RAIDER THE 2ND BEST INVESTOR TO BE YOUR GUIDING LIGHT LOH
REMEMBER YOUR MIND GOT POWER LOH

[penton]

MIND GOT POWER....BUT POKET ONI GOT POWDER....

[SEA PEN]

For ALL ASPIRING DOCTOR APEK AND AUNTIE INVESTOR.
NEVER LET ARROGANT CONTAIN & CONTROL U
U SHALL AND WILL OVERCOME IT TO BECOME THE BEST INVESTOR LOH
LET LENO THE MOST INTELLIGENT INVESTOR TO BE YOUR GUIDING LIGHT LOH
REMEMBER YOUR HUMILITY SHALL SAVE YOUR ANUS LOH

[(bb)]

For ALL ASPIRING DOCTOR APEK AND AUNTIE INVESTOR.
NEVER LET ARROGANT CONTAIN & CONTROL U
U SHALL AND WILL OVERCOME IT TO BECOME THE BEST INVESTOR LOH
LET LENO THE MOST INTELLIGENT INVESTOR TO BE YOUR GUIDING LIGHT LOH
REMEMBER YOUR HUMILITY SHALL SAVE YOUR ANUS LOH

Rule No 1:  Don't lose your anus. 

[SEA PEN]

Rule No 1:  Don't lose your anus. 

i thought

Rule No. 1 : Don't lose my sausage ?

 

[(bb)]

How valuable?

Finally, after assessing potential returns (how much, how soon, how long, how consistent), you must assign a current value to those returns. 

That value is driven by the value of the investment money as it may be used elsewhere. A return may look attractive - until the investor realizes that he or she can achieve the same return with a bond or a less risky investment.

Valuing the returns involves discounting (using a discount rate) to bring future returns back to fair current value.  The discount rate is your personal cost of capital - in this case, the rate of return you expect to deploy capital here versus elsewhere.

How consistent?

A company producing slow, steady growth and return is usually more valuable than one that's all over the map.

A greater variability, or uncertainty, around projected returns calls for more conservative growth and/or discounting assumptions.

How do you calculate the intrinsic value of Petronas Dagangan?
How do you calculate the intrinsic value of PPB?
How do you calculate the intrinsic value of Dutch Lady?
Maybe Simple Soul can help us here.

How do you calculate the intrinsic value of GSB?
Perhaps, the promoter J can help us here.

Nothing sinister.
The message is simple.
Here are the earnings projections.
Do your OWN valuations.    


 

Assumptions:
2011 earnings 8m

GDV over 4 years of 300m (new projects yet to be launched next year)
Net profit margin 15%
Net profit 45m over 4 years

Net asset value as per latest quarter 0.0946 sen
Number of outstanding shares 400m
Book value 38m


Earnings projection over the next few years
2011 8m
2012 11m
2013 11m
2014 11m
2015 11m

Net asset value projection over the next few years
2011 38m + 8m = 46m
2012 46m + 11m = 57m
2013 57m + 11m = 68m
2014 68m + 11m = 79m
2015 79m + 11m = 90m

[(bb)]

i thought

Rule No. 1 : Don't lose my sausage ?

 

 

[(bb)]

Present value calculator
http://www.moneychimp.com/calculator/present_value_calculator.htm

Inputs
Future Value:    $   
Years:        
Discount Rate:         %
 

Results
Present Value:    $   

[simplesoul]

How do you calculate the intrinsic value of Petronas Dagangan?
How do you calculate the intrinsic value of PPB?
How do you calculate the intrinsic value of Dutch Lady?
Maybe Simple Soul can help us here.

How do you calculate the intrinsic value of GSB?
Perhaps, the promoter J can help us here.

PetDag 2010
EPS             0.758
Div              0.600
Payout Ratio 79%

Assume future payout 60%
Growth rate               9%
Discount Rate            11%
Terminal PE                14

NPV almost RM 13

[simplesoul]

How do you calculate the intrinsic value of Petronas Dagangan?
How do you calculate the intrinsic value of PPB?
How do you calculate the intrinsic value of Dutch Lady?
Maybe Simple Soul can help us here.

How do you calculate the intrinsic value of GSB?
Perhaps, the promoter J can help us here.

DLady 2010
EPS    1.000
DPS    0.950
Ratio      95%

Assume growth 12%
Discount Rate   11%
Terminal PE      15

NPV about RM 24

[simplesoul]

DLady 2010
EPS    1.000
DPS    0.950
Ratio      95%

Assume growth 12%
Discount Rate   11%
Terminal PE      15

NPV about RM 24

forgot future payout ratio at 70%
 

[simplesoul]

How do you calculate the intrinsic value of Petronas Dagangan?
How do you calculate the intrinsic value of PPB?
How do you calculate the intrinsic value of Dutch Lady?
Maybe Simple Soul can help us here.

How do you calculate the intrinsic value of GSB?
Perhaps, the promoter J can help us here.

PPB and Nestlé , hope BB can share his valuations!!!!
 

[johnmaster]

For GSB, we dont really need to care what intrinsic value it has... the most important thing about GSB is SIMA GROUP.

Remember, great companies can be run into the ground with a lousy management team. Lousy management team always manage to find itself into companies very good intrinsic values because there is where they want to be. They will plunder the companies dry.

Where smaller companies with a very good management team and decent fundamentals will grow peacefully. Trouble makers will only come when the company is already very big, very good intrinsic values. So, to me company like GSB is ideal for investment.. it is still small ( wont attract any con man into it because there is nothing much to plunder ).

However most small companies will stay small or find it hard to survive because cannot compete... BUT GSB is very different, it has SIMA GROUP. SIMA GROUP is a company with 40 years of property development experience and 40 years of great reputation of being thrustworthy and able to produce very high quality properties. With SIMA GROUP backing, GSB can compete with anyone, big competitors, small competitors... GSB will have no problem competing with any of them. That is what unique about GSB.

Intrinsic value takes a back seat in GSB case... because it has a 40 year old super brand and a super capabilities inside.

How do you calculate the intrinsic value of Petronas Dagangan?
How do you calculate the intrinsic value of PPB?
How do you calculate the intrinsic value of Dutch Lady?
Maybe Simple Soul can help us here.

How do you calculate the intrinsic value of GSB?
Perhaps, the promoter J can help us here.

[simplesoul]

For GSB, we dont really need to care what intrinsic value it has... the most important thing about GSB is SIMA GROUP.

Remember, great companies can be run into the ground with a lousy management team. Lousy management team always manage to find itself into companies very good intrinsic values because there is where they want to be. They will plunder the companies dry.

Where smaller companies with a very good management team and decent fundamentals will grow peacefully. Trouble makers will only come when the company is already very big, very good intrinsic values. So, to me company like GSB is ideal for investment.. it is still small ( wont attract any con man into it because there is nothing much to plunder ).

However most small companies will stay small or find it hard to survive because cannot compete... BUT GSB is very different, it has SIMA GROUP. SIMA GROUP is a company with 40 years of property development experience and 40 years of great reputation of being thrustworthy and able to produce very high quality properties. With SIMA GROUP backing, GSB can compete with anyone, big competitors, small competitors... GSB will have no problem competing with any of them. That is what unique about GSB.

Intrinsic value takes a back seat in GSB case... because it has a 40 year old super brand and a super capabilities inside.

40years can build a lot of value alreadi ma. after 40years if still cannot value, might b a problem leh!!!!brand name or franchise value after so many years can also b estimated woh!!!!

 

[johnmaster]

40years can build a lot of value alreadi ma. after 40years if still cannot value, might b a problem leh!!!!brand name or franchise value after so many years can also b estimated woh!!!!

 

I dont know how to calculate, you go and calculate. But for me, that 40 years of property development experience and proven quality work is enough to enable GSB to compete with players in the market. That alone is enough to bring bright future for GSB.

[(bb)]

I dont know how to calculate, you go and calculate. But for me, that 40 years of property development experience and proven quality work is enough to enable GSB to compete with players in the market. That alone is enough to bring bright future for GSB.

He doesn't know how to calculate.
But he is so good in his earnings projections.
 

Nothing sinister.
The message is simple.
Here are the earnings projections.
Do your OWN valuations.    


 

Assumptions:
2011 earnings 8m

GDV over 4 years of 300m (new projects yet to be launched next year)
Net profit margin 15%
Net profit 45m over 4 years

Net asset value as per latest quarter 0.0946 sen
Number of outstanding shares 400m
Book value 38m


Earnings projection over the next few years
2011 8m
2012 11m
2013 11m
2014 11m
2015 11m

Net asset value projection over the next few years
2011 38m + 8m = 46m
2012 46m + 11m = 57m
2013 57m + 11m = 68m
2014 68m + 11m = 79m
2015 79m + 11m = 90m

[(bb)]

He doesn't know how to calculate.
But he is so good in his earnings projections.
 

hey.. I did not project any of those okay, its all your projection and not mine.

I call Johnmaster is a liar.

[simplesoul]

PetDag 2010
EPS             0.758
Div              0.600
Payout Ratio 79%

Assume future payout 60%
Growth rate               9%
Discount Rate            11%
Terminal PE                14

NPV almost RM 13

PetDag 2011
EPS             0.875
DIV             1.000
Payout Ratio  114%

Assume future payout 60% calculating based on 10 year assuming......
Growth Rate   10%
Discount Rate 10%
Terminal PE     14

NPV     RM 17.50

[soulsimple]

Here’s what Graham had to say on the matter in Security Analysis.

“The essential point is that security analysis does not seek to determine exactly what is the intrinsic value of a given security. It needs only to establish that the value is adequate – e.g., to protect a bond or to justify a stock purchase – or else that the value is considerably higher or considerably lower than the market price. For such purposes an indefinite and approximate measure of the intrinsic value may be sufficient.”

[soulsimple]

Here’s what Seth Klarman had to say on the matter in Margin of Safety.

Many investors insist on affixing exact values to their investments, seeking precision in an imprecise world, but business value cannot be precisely determined. Reported book value, earnings, and cash flow are, after all, only the best guesses of accountants who follow a fairly strict set of standards and practices designed more to achieve conformity than to reflect economic value. Projected results are less precise still. You cannot appraise the value of your home to the nearest thousand dollars. Why would it be any easier to place a value on vast and complex businesses?

Not only is business value imprecisely knowable, it also changes over time, fluctuating with numerous macroeconomic, microeconomic, and market-related factors. So while investorsat any given time cannot determine business value with precision, they must nevertheless almost continuously reassess their estimates of value in order to incorporate all known factors that could influence their appraisal. Any attempt to value businesses with precision will yield values that are precisely inaccurate. The problem is that it is easy to confuse the capability to make precise forecasts with the ability to make accurate ones. [emphasis added]

[DUDA]

Theoretically and practically, the value received for owning a business or a security is the dollar return amount received over time from your investment. 

That return may come
- as a single payment at the end of the ownership period for selling the stock or business,
- as payments at regular intervals during ownership, or
- (often) as a combination of the two.

But growth and time value of money have a major impact on the final valuation of equity investment returns.  In fact, intrinsic valuation is a lot about assessing the effects of future growth on future returns and then assigning a present value to those returns.

WHO  CARES  as long as a stock give  angpows ....even a  coffin warrant is  OK giving $$$  much better then a KAPUT  BLUECHIP  !!

[stockraider]

Here’s what Graham had to say on the matter in Security Analysis.

“The essential point is that security analysis does not seek to determine exactly what is the intrinsic value of a given security. It needs only to establish that the value is adequate – e.g., to protect a bond or to justify a stock purchase – or else that the value is considerably higher or considerably lower than the market price. For such purposes an indefinite and approximate measure of the intrinsic value may be sufficient.”

Here’s what Seth Klarman had to say on the matter in Margin of Safety.

Many investors insist on affixing exact values to their investments, seeking precision in an imprecise world, but business value cannot be precisely determined. Reported book value, earnings, and cash flow are, after all, only the best guesses of accountants who follow a fairly strict set of standards and practices designed more to achieve conformity than to reflect economic value. Projected results are less precise still. You cannot appraise the value of your home to the nearest thousand dollars. Why would it be any easier to place a value on vast and complex businesses?

Not only is business value imprecisely knowable, it also changes over time, fluctuating with numerous macroeconomic, microeconomic, and market-related factors. So while investorsat any given time cannot determine business value with precision, they must nevertheless almost continuously reassess their estimates of value in order to incorporate all known factors that could influence their appraisal. Any attempt to value businesses with precision will yield values that are precisely inaccurate. The problem is that it is easy to confuse the capability to make precise forecasts with the ability to make accurate ones. [emphasis added]

no matter how raider try to value gsb ....max value still Rm 0.12 that also goreng value loh...!
Fair value Rm 0.05-0.06 loh...!

[soulsimple]

no matter how raider try to value gsb ....max value still Rm 0.12 that also goreng value loh...!
Fair value Rm 0.05-0.06 loh...!

Raider,

take a break la!!!! go makan makan........everyday talk value also tiring .....no?

 
ps. after my break will give u a big 009investigating Q? sure can cari makan one if can find the clues!!!!

[k2010]

Please show some details on how to calc Intrinsic Value Basics

[soulsimple]

Yesterday, I wrote a blog post that described Tom Gayner’s approach to valuing Berkshire Hathaway. Gayner is a great investor with deep knowledge of Berkshire, in particular, and the insurance business, in general. In the post, I used Gayner’s framework to calculate a range of intrinsic value for Berkshire.

The blog post was also published on GuruFocus.com, where it received some criticism for the range of intrinsic value being too wide, and, buy extension, not particularly useful.

Admittedly, the range produced (for the B shares) is a wide: $55 to $208. Arguably, an analyst could pin that range down by narrowing the range of assumptions and/or tweaking the model.

On the otherhand, such a wide range may be useful to an investor if the stock is trading near, or below, the low of that range.

Why?

Because the wider the range, the greater the pro****lity that the value is actually within that range.

Put more precisely, the greater the range, the greater the pro****lity that the ACTUAL future free cash flows discounted by the ACTUAL future prevailing interest rates will be within that range.

If you can buy a security at a discount to this range you may have found a winner and, equally important, you’re unlikely to loose your capital.

When you insist on a margin of safety when buying a stock – for example, requiring at least a 30% discount to your estimate of intrinsic value – you are implicitly making allowance for the fact that your estimate of value may be materially higher than the business’s actual intrinsic value. This is really just another way of looking at intrinsic value as a range.

Here’s what Graham had to say on the matter in Security Analysis.

“The essential point is that security analysis does not seek to determine exactly what is the intrinsic value of a given security. It needs only to establish that the value is adequate – e.g., to protect a bond or to justify a stock purchase – or else that the value is considerably higher or considerably lower than the market price. For such purposes an indefinite and approximate measure of the intrinsic value may be sufficient.”

Here’s what Seth Klarman had to say on the matter in Margin of Safety.

Many investors insist on affixing exact values to their investments, seeking precision in an imprecise world, but business value cannot be precisely determined. Reported book value, earnings, and cash flow are, after all, only the best guesses of accountants who follow a fairly strict set of standards and practices designed more to achieve conformity than to reflect economic value. Projected results are less precise still. You cannot appraise the value of your home to the nearest thousand dollars. Why would it be any easier to place a value on vast and complex businesses?

Not only is business value imprecisely knowable, it also changes over time, fluctuating with numerous macroeconomic, microeconomic, and market-related factors. So while investorsat any given time cannot determine business value with precision, they must nevertheless almost continuously reassess their estimates of value in order to incorporate all known factors that could influence their appraisal. Any attempt to value businesses with precision will yield values that are precisely inaccurate. The problem is that it is easy to confuse the capability to make precise forecasts with the ability to make accurate ones. [emphasis added]

Although I stress that the valuation range for Berkshire is based on my assumptions using Gayner’s framework, Gayner’s approach exhibits wisdom when viewed through the lense of Graham and Klarman.

Greg Speicher

[iiinvestsmart]

1.  How to derive the intrinsic value of an asset?

Discounted cash flow DCF analysis can be used to value any asset, including stocks, bonds and real estate. 

The present value PV of an asset is the discounted value of all its future cash flows.

This PV is also the intrinsic value of the asset. 

----

2.  What are the steps in DCF analysis to derive intrinsic value of a stock?

DCF analysis is predicated on the premise that a share of stock must be worth the present value of all the future cash flows it is expected to generate for the investors.

This begins by estimating what those future cash flows will be.  There is tremendous potential for error here. 

Once the projected cash flows are estimated, they have to be discounted back to the present in order to determine what they are worth in current dollars.

The discount rate itself is a function of the general level of interest rates in the economy and the risk of an investment.

Those who are willing to apply themselves and learn how to conduct a proper DCF analysis give themselves a distinct advantage over those who do not want to bother to learn the technique.

----

3.  What cash flows projections are used in a DCF analysis to calculate intrinsic value of a stock?

There is more to cash flows than dividends. The cash flows do not actually have to be paid out to the investors to be included in a DCF analysis. 

The shareholders have rights to the cash flows whether or not they actually receive them.  These cash flow might be reinvested in the company, but technically they belong to the shareholders. Therefore, a proper DCF analysis must include all the cash flows, whether they are paid out to investors or retained within the company and reinvested.


----

4.  Why is the DCF analysis the preferred method Buffett uses to calculate the intrinsic values of his stocks?

Conducting a proper DCF analysis is as much art as it is science. 

However, Buffett relies on this methodology because he knows that it is the only theoretically correct way to determine what a stock is worth.

The ability to make good projections is what distinguishes Buffett from other investors.  Buffett excels at this game.

Buffett finds undervalued stocks using the DCF approach.  Fortunately, conducting a DCF analysis is not easy.  It is also one of Buffett's favorite ways to spot undervalued stocks.

-----

5.  What is the difference between value stocks (low price multiple e.g.low PE, low P/B, low P/CF, or P/S) and undervalued stocks?

Buffett may have a general preference for value stocks over growth stocks, but only because value stocks are more likely than growth stocks to be undervalued.  It would really be more accurate to call Buffett an "undervalued" investor. 

The point is that when he says he likes to buy cheap stocks, he is not talking about price multiples. Instead, he is talking about discounting cash flows to find stocks with intrinsic values that are greater than what he would ahve to pay for them in the market.

Thus, Buffett is not really looking to buy cheap stocks at all.  Instead, he is looking to buy stocks cheap.