What Is the Meaning of Intrinsic Value?
John Burr Williams explains intrinsic value with a classic poem
John Burr Williams was the author of the 1938 book The Theory of Investment Value. He explains what is probably the most fundamental concept in investment analysis—intrinsic value—with this poem:
A cow for her milk,
A hen for her eggs,
And a stock, by heck,
For her dividends
An orchard for fruit
Bees for their honey,
And stocks, besides,
For their dividends.
In short, a stock is worth only what you can get out of it. Cash, bonds, stocks and real estate all produce income and therefore have intrinsic value. This provides a logical basis for valuing these assets. Things like gold and bitcoin, on the other hand, have no intrinsic value. This makes them very tricky because they lack any logical basis for valuation.