I will have to protest that this famous guy just swiped my "Absolute Value" (tm) theorem. There's no damn justice!
He talks about absolute value, but then he basically calculates a complicated P/FCF variant. I think he's managed to confuse himself. Still, his heart's in the right place!<g> Wouldn't it be nice if he'd come along here and prove me wrong. Sounds like he knows a bit of accounting...
"even a total slug of a
company will appear undervalued. Given this, what does such a test
tell you? Not much. It can be used to weed out something incredibly
overpriced and that's it."
What if it's a verrrryyyy dependable slug?<g>
Like you said, qualitative analysis is much more important than valuation. Why do a valuation on a company that you don't understand, or have little faith in? But if you do feel very strongly about a company such as MCD, and after very careful qualitative analysis are utterly convinced about the approximate cash flows, in fact are even more convinced than about most companies who have good FCF now, how much should you pay?
"STOP YAMMERING ON AND ON ABOUT MCDONALD'S ANDREW!!! We know you can't help yourself and are trying to rationalize yesterday's foolhardy plunge into the maw of market upheaval, but SHADDUP ALREADY!"
Ok, Ok...how about a compromise. I tried to do this as a check - you guys might like it. I did my estimating voodoo stuff, and created an imaginary year about 5 years out. I calculated that imaginary year's rough FCF. I applied a "reasonable" multiple to it. It looked like a 3-bagger in 5. I don't think it addresses my "absolute" value concerns, but it does look ahead to the future a bit...and it's not all equation-y.
Hey guys! I'm up 1% on my MCD *already* !! I declare the experiment a success, and refuse to be judged at a later date. Unless it goes up. A lot.
I should drink less coffee I think...
Andrew |
