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Strategies & Market Trends : Value Investing

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To: blankmind who wrote (13796)	1/27/2002 10:51:40 AM
From: TimbaBear	Read Replies (2) of 78704

blankmind Regarding..."...- AOL @ $28 is definitely in the value category..." and "...they really are raking in a lot of cash that's masked by their huge goodwill writeoffs..." AOL's free cash flow (which accounts for stock buybacks, acquisitions, etc) is only $.557/share through the last nine months. This amount, annualized, would be $.743/share. 74 cents on a 28 dollar investment would represent a 2.7% yield on my investing dollar. If I invest in the market, I want a much higher rate of return than I can get with a "risk free" investment. I want to be compensated for the risk I am assuming. Part of my definition of value is a return that justifies the risk. I'll grant you that there might be some element of a margin of safety in the fact that AOL is selling below its book value, but there is nothing to say to me, that it won't be selling even lower against book in the future. I usually look to the real cash flow for my safety as well as discount to book. AOL doesn't make the grade yet. This is not to say that those who invest in it at these levels won't make money, possibly even a lot of it. Just that I can't justify investing in it as a value play yet. Timba

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