There is only one logically correct way to arrive at intrinsic value.

There is one and only one way to calculate the true intrinsic value of a company and the formula is extremely simple. It doesn't matter if you are valuing banks, biotech, AI, miners or backpacks designed to capture methane from cow farts.

Intrinsic value = PV of dividends + PV of judgement day

Where judgement day is the cash produced at eventual liquidation or acquisition. One day every company will merge, be bought out or die. That's a terrific thing. Capitalism destroys old enterprises and births new ones.

In the formula above, those are the two parts of intrinsic value, no more no less. It is the value today of all cold hard cash returned to owners. It doesn't matter how much a company makes today. If it never pays dividends and returns cash to owners it is worth 0.

Do buybacks "return cash"? No. The only reason why we might like buybacks is because it expands our interest in the company and claim on future dividends. If executed properly below intrinsic value, they can be wonderful uses of cash and give you more dividends than otherwise. But above it, they are simply lighting money on fire or providing exit liquidity.

Does that mean we should never invest in companies that don't pay dividends? Absolutely not, especially if money can be re-invested well. Even unprofitable companies with a viable path to profitability can be great investments. But as a mental framework, we cannot forget the ultimate purpose of companies and the primary reason they exist is to write checks to owners.

While pockets of opportunity exist even in growth industries, much of the current market is becoming increasingly detached from reality. As owners, we MUST be paid eventually and shareholders are becoming increasingly tolerant of pushing the period of being paid back, further and further into the future.

There's a saying that you should only lend money to a friend if you're willing to lose a friend, the money or both. Well we're treating companies today like friends and the longer we wait, the less valuable the payout becomes today, especially with rising rates. Worse still, the longer we wait the more likely we are to never even get it.