I think WEB sometimes leads people astray with this intrinsic value BS because they neglect that he outright owns a ton of businesses and those in many cases are what drives the growth in his book value. I've come to believe that intrinsic value is nearly irrelevant for publicly traded securities where you are not a control investor. My thinking has evolved mostly over the past 4-5 years when I incorporated selling short because that made me really focus on how the market is solely focused on earnings/earnings quality. Look at any of these retailers, ANN for example. This is worth $3 or so and was worth what $40 about 24 months ago? So what's the real intrinsic value. Right now, the market is saying retailers will have no earnings growth and margins will be suppressed even in 2010 so that's what's keeping values down while in 2007 it was pricing in high, sustained earnings growth + margins which led to those high values we saw. To me, invsting is just about finding the biggest delta between market expectations and what you think is more likely, basically steindhart's variant perception. My screw ups on the long side have been keeping a longer time horizon than I should (~36 months) where as with shorts I bring it in from 6-18 months with most things either being wrong within the first Q or being right <12 months (even pre 2008 market meltdown).

A long time horizon is ok but I personally found it was impeding my risk management with my longs. When I sell short I don't care where I think the stock is going if the market is going against me. i'll hedge it with OTM calls on nice pullbacks and I trim shorts that go against me and outright cut my losses when I realize the market is going to make me pay for holding on. But with longs I found myself stupidly willing to ride something down because I felt my business analysis was correct (talking about forward business analysis). So the market could be punishing my stock by 30-40% and I'd revisit my analysis along with all the other market info I could find but the better move would be to control the risk and have trimmed that position on the first 10% loss and maybe blown it all out shortly after. I have changed my approach since then and it works better for me. I have found other value guys just ride these stocks down, increase their stakes and result in further, huge losses and revisit the work and kill themselves mentally/emotionally when they should just take the hit early on.

WEB says he doesnt care about vol but I think anyone who isn't a multibillionaire should, I honestly think the investment industry banks on the fact that people don't think about the math regarding volatility.
It's like when I was reading the Schiff-Mish battle and how some clients lost 50-80% off Schiff's positions and Schiff I believe was on Yahoo Tech Ticker video saying sure his clients lost but that loss will just be a blip over the long-term. and then there are Schiff clients that are down 60+% defending him. I'm thinking have these people done the math? A blip? It would take 5 years of 15% returns per year to get back to even from a 50% hit but people don't get it. So I think WEB's claim re vol is worthless for most investors. We're not billionaires so why put ourselvs in a position where we need those types of returns just to break even.

As for IV versus market value, I think most people should focus on market value. For example, I have owned MVL ahead of big movies (Spiderman II, III, Iron Man) and it's done well for me and I used to think I'd hold MVL forever. However, why? What's the point? The market only cares about what will happen in the coming year or so, so in 2009, MVL just has Wolverine coming out and this is not a MVL produced film (Fox) so this year will generally have very low earnings. I actually have been short short MVL, a company I love in terms of its content and would be on my list of companies to own privately if possible and think this could be in the teens this year, particularly because mgmt is stumbling with its studio release schedule with some delays for 2011-2012.

Now, to me intrinsic value would matter to me if I owned MVL outright. I could say the comic publishing division is giving me X in terms of cash flow, licensing is doing X, and MVL's small film library of IM and Hulk will continue to create future value. At least I could use those cash flows and invest them in other projects too outside of media and value those future cash flows at x so sure, MVL across the board in a private, control situation has an intrinsic value. Like WEB, if I owned MVL privately and was getting those cash flows into my coffers, I wouldn't need a quote on it for decades. But to a person holding that stock, I think the focus on IV is a mistake and I want that quote.

The reason on a more simplified basis is that if I pay $100 for a business and it gets me $15 in net income, I now have a nice 15% return on my investment. That $15 is money in the bank (assume its a simple non-fin business). In that case the increase in book value is a valid measurement for the improvements in my business and it makes sense WEB does that for BRK. However, if I own a stock for 10x EPS and it grows its book value by 15% in a year but now MR Market goes nuts and wanst to pay just 7.0x EPS, am I supposed to say hey, all is good our book value which we has a public minority shareholder have no real claim over, went up or do I say, this sucks because my investment is down significantly?

I'm not saying the solution is to be a maniacal trader but I think it's important to have an eye on valuation from a forward basis. Sure, know the historical data and metrics but that's already known. I don't care that MSFT has x% of desktop market share, I don't care that it's historical ROE is this this and that, I want to know them to help reconcile what the market is telling me but they have no value from a market perspective. Most importantly I want to have an idea of where I think MSFT is going with its business and reconcile that to what the market is telling me and if I have confidence I'm right, that's when I'm willing to invst. But when there is no edge because the valaution/margin of safety on a forward basis is not that attractive, then you have to hold back.

And I think WEB does not mention in conjunction with his market talk the fact that he has held his own personal cash in treasuries for long periods of time. How many retail or pro investors could sit on the sidelines for years and years waiting for the super fat pitch?