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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: Uncle Frank who started this subject6/18/2001 11:07:32 AM
From: Seeker of Truth  Read Replies (2) of 54805
 
Discounted cash flow methods, in a more sophisticated way should include the likely decline of the return on assets, return on equity, and concomitant growth rate of the sales and earnings. Also one has to take into account the current return on money because changes in interest rates do and should affect stock prices and values. But as someone of us said here recently, (who was it?) sophistication is not the same as accuracy. Indeed,John Shannon's work is elegant and beautiful. But one must add that there are non quantifiable elements. How can I avoid the FEELING that Larry Ellison doesn't always tell the truth? If I hear the CEO and he sounds like a frank and open man, telling the truth, I am favorably impressed. If I know something about the technology and he sounds like he also understands it that's also favorable. If he rewards himself too much I'm repelled. Of course we can make numeric variables of all these qualitative factors; we could throw dozens of such things into our equations, even making them functions of time. But sophistication doesn't equal accuracy. I think we should look at discounted cash flow only after a stock passes the gorilla and other qualitative tests. Aside from yes or no, buy or no buy, there are all kinds of questions like buy some more of X or some more of Y? DCF should be valuable here, of course. Even here qualitative features may enter. We may have noticed a certain excellence in a product of the company that we didn't previously know about or a certain deficiency. These do and should guide us toward or away from further purchases. We can always take one look at the qualitative aspects and one look at the quantifiable aspects and maintain a kind of balance. Qualitatively I think SEBL is the best company around to invest in. Quantitatively I am waiting for a better price. The lower it goes the more I will buy.
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