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Strategies & Market Trends : Value Investing
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To: E_K_S who wrote (61584)12/28/2018 1:38:49 PM
From: Graham Osborn  Read Replies (1) of 78747
 
10 years is totally arbitrary. The relevant question is whether your holding period is long enough to return the principal on the investment. Graham’s holding period could be short because he was often buying at a discount to net current assets - meaning he got the money “back” the minute he made the purchase (although as a practical matter you really need Buffett-type “controls” to guarantee the liquidation). If you aren’t buying a business at a discount to liquidation value, you are projecting future cash flows will be adequate to achieve your hurdle rate of return over a certain period of time. For example, Buffett bought Coke at about 10X FCF if I remember correctly, which would mean if growth continued at the pace of inflation over the next 10 years then he would get “back” the money in 10 years. Any terminal value (which in Coke’s case was significant) would add to the margin of safety. But I would argue that investment would not have made sense if Buffett did not intend to hold for at least 10 years, if he was assuming 4% growth and 4% inflation. If he assumed higher growth, that would have reduced the hurdle holding period accordingly (perhaps 5 years instead of 10 years). I can’t do the math in my head.
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