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Strategies & Market Trends : Buffettology

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To: Shane M who wrote (475)	10/22/1998 5:40:00 PM
From: James Clarke	Read Replies (1) of 4690

Like I said, I am not going to mess around with valuing Microsoft when everybody in the world loves it. My signal is psychology on a stock like that. But if you really want to look at it on an ROE basis, back out the cash on the balance sheet and you will find that the business has virtually no book value. What do you do with that? Waiting for stocks to be way out of favor means is I am going to miss the $53 bottoms on Coke, if that really is the bottom. I like to buy only what is out of favor, and one can hardly call Microsoft or virtually any high ROE consumer products company out of favor right now. As for Safeway, be real careful with ROE on this one because equity was very distorted by the LBO around 1990. When it came public again, the company had negative equity. For companies like that it is really tricky to calculate what their reinvestment rate actually is, especially when the reinvestment has been funded by issuing shares of stock. There's just too much going on there. Jim

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