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Strategies & Market Trends : Hedge Funds
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To: Knighty Tin who wrote (82)1/2/2001 6:58:46 PM
From: Marty Rubin  Read Replies (1) of 120
 
MB,
Charles Munger, Berkshire's Vice Chairman also doesn't like the EVA method, and thinks that it's nonsense: "There's an awful lot of twaddle and b.s. in EVA. The game is to turn retained dollars into more dollars. EVA incorporates a cost of capital that makes no sense. But it's very fashionable now" (http://www.wealtheffect.com/stocks/b10.asp, dated 04.29.2000).

What I learned is that EVA is best used to measure a manager's specific and yearly performance (very specific and short term), while using discounted cash flow (DCF) to value the entire company. Aside from some useless academic formulas, I assume we also all agree that most of GAAP (p/e, book...) is b.s., but then it's still being used. Oh well.
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