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Strategies & Market Trends : Value Investing
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To: Paul Senior who wrote (8861)11/2/1999 10:57:00 PM
From: James Clarke  Read Replies (1) of 78616
 
<<Every once in a while there's a start of a discussion about the importance of interest rates and a focus on "the relationship between ROE and price/book value". I want to mention at this juncture that I agree with you, but going further, I believe that there should be a way - and there is a way (imo) - to link them. I've not seen any discussion of this linkage on the Value thread. I myself do use an arithmetical ratio that combines in one number a company's ROE, p/b, and a Cost of Capital factor.>>

I do something that's probably fairly similar in a screen, though I don't incorporate a cost of capital factor - I guess perhaps because I think all companies with the kind of balance sheets I am looking for have roughly the same cost of capital at any given time. That cost of capital will vary as interest rates move up or down, but that I incorporate in my second stage of analysis. I am not going to go into what that screen is - I consider it proprietary and although it is very simple in the end it took me three years to get it to do what I wanted. Armed with this and my net-net screen, I can fish both ends of the market - very good companies that are cheap and very bad companies that are free. i.e. Buffett and Graham. These screens capture a fraction of 1% of the stocks on the market, but I have little interest in the other 99% anymore.

The fact that you found Unifirst at about the same time I did should have told me we are fishing in the same pond. Because I had never seen the company mentioned anyplace else.

JJC
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