John,
>when folks say "what you do doesn't work"... well... it works for me
It's great if it works for you. Unfortunately (??), there is no universal way that works for everyone. It is partially an art, a game, luck, magic... ;-) That's why I tend not to preach my approach. Especially since I am not convinced if IT works. ;-) :-(
>As to Buffet buying and selling? He buys and sells.
Yeah, I did not claim otherwise. However, he does not buy and sell because of macro indicators. For example, he did not sell KO and AXP, even though he himself claimed that market is overvalued.
>You are following Mr. Buffet and yet when he says "stay away from tech" you do not?
Yeah, I thought that 10 years of good ROE indicates staying power in tech. Especially when it is G&K (hey, here's a tie-in to this thread at last! :-)))) We'll see if I was wrong buying CSCO, INTC, MSFT, ORCL this year.
>Seems like you follow in footsteps yes. But perhaps different boots on a different path. Caution of invoking dogma.
I agree: dogma may burn one.
>How do you "value" a specific company?
I use the Buffetology spreadsheet from valuestocks.net I choose companies with 10 years average ROE >15%. I plug in the data from Quicken.com and Marketguide.com into the spreadsheet, use 15 LowPE and 25 HighPE and voila. I buy only the companies that have Low Predicted Rate of Return above 15%.
Looks simplistic and maybe it is, but I also look at the companies qualitatively and try to see if they will be able to continue the high ROE existence in the future.
I also double up with each 30% drop in price qualitative analysis does not change and I have cash, but then I lighten with ~50% gains and hold the rest for long term. I sell long-term position if predicted rate drops below 5% or if my perception of company significantly changes.
>Does this valuation include coming up with a target entry price and a target exit price?
Yes for target entry price. Target exit price adjusts depending on new earnings.
>Do you include opportunity cost or compare this value against a small universe of alternatives?
I compare against the universe of other companies. Sometimes, I decide to switch horses, but I have noticed that this only reduces my return, because I am usually early to buy, so selling to switch means that something which already went down and is coming up again is sold to buy something that will drop more before coming up. Witness switch from ANF to techs. ;-)
BTW, the much much more important topic for me is how to work with 401(k). There I can only choose mutuals and this is much harder, so I buy S&P+Invesco tech sector+Invesco health sector funds. Any suggestions there?
Jurgis - Don't learn from me, my long term record is horrible |
