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I would like to read a specific example of how the value of a company is determined according to the "value investing" philosophy. Warren Buffett can be seen on one of his YouTube videos, describing how he will first determine the value of a company if he was to buy the whole company. After that he will look at the current price of the company (share price * number of shares). If the latter is significantly lower, then he will buy the company.

My question is, how does he determine the value of a company. I would really like to see such a calculation with either an idealized company or a company I am able to understand, like a railroad company, or Coca-Cola (I at least think I can understand this company).

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  • Which YouTube video? I am not aware that Buffett publishes YouTube videos... – Flux Sep 21 '20 at 8:37
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I highly recommend http://pages.stern.nyu.edu/~adamodar/ Professor Damodaran. He's written some of the best valuation books in existence (my favorite, simply "Investment Valuation").

On his website you'll find a big pile of spreadsheets, that are models for working the various approaches to valuing a company.

Also, he teaches an MBA-level valuation course at Stern School of Business in NYC. And he videotapes it and you can watch it for free.

Very smart, kind, generous man.

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Buffett is in a different league from other value investors. He looks for stable companies with no debt and good management. Then he looks to deeply understand the industries of candidate companies, and looks for companies that are not in commodity businesses or sell commodities that can be bought for 25% of the valuation that he believes reflects the true value of the company.

Deeply understanding the market is really the key.

Consider the Burlington Northern Santa Fe Railroad, which Buffett purchased last year. Railroads benefit from higher oil prices, as they can transport cargo much cheaper than trucks. They also tend to have natural monopolies in the regions they operate in. Buffett bought the railroad just as production of oil and natural gas in North Dakota started picking up. Since pipeline capacity between North Dakota and refineries in Texas/Oklahoma is very limited, the railroad is making a lot of money transporting crude oil.

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