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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: EnricoPalazzo who wrote (43572)	6/16/2001 8:27:22 PM
From: Stock Farmer	Read Replies (1) of 54805

Yes. >>If I don't think there's much risk in the projects that XYZ will undertake, why should I apply a discount rate of > risk-free rate, just because other people think there's risk? << Short answser..... uhm.. yes. If there's zero risk in what the company is doing then their weighted average cost of capital will also be the risk free rate. If their actual Weighted Average Cost of Capital is greater than the risk free rate, it's because they can't convince themselves, their bankers and so on that their projects are risk free. These are the "other people" who set this WACC. Feel free to claim better insight into the company than this crew. Me, as I prepare to pick up my few hundred nanopercent stake in a company? Well I'm not that... um... self confident. Now, Buffet, who picks through a company with a fine tooth comb (no mistake about it, the guy just doesn't buy on a whim), maybe he gets a good picture. But the beauty of the market is that different folks take exactly the same information and come to different conclusions. John.

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