James, when are you going to swing the bat? You are too mired in methodology IMHO. (I posted this before I read you bought some BRKb as by the way I just did) but nonetheless....
Consider this from my mentor, Chuzzlewit--
The problem with [here I insert, Buffettology true believers] is that they talk valuation but don't
understand it. To put it very simply, value is in the eye of the
beholder. Real estate and ketchup are both valued on the same basis:
what a willing buyer and willing seller agree to.
But throw a capital asset in the mix, like stocks, and all of a sudden
these guys start looking at things like book value and P/E. I am
convinced that the key to valuation is the reasonable assessment of
FUTURE cash flows. I am also convinced that we are on the leading edge
of a major industrial revolution which will result in the replacement of
the much of the specialty retail segment with electronic commerce. The
beneficiaries are going to be companies like Dell, CSCO, ASND and TLAB,
which provide equipment to shoppers roughly analogous to the car, and
companies like AOL which are roughly analogous to the shopping mall. The
electronic stores that will emerge will replace many existing physical
stores.
So why is this exciting from a business point of view? Because, aside
from the requirement to reinvent the infrastructure with electronic
networks (which means lots of business for the equipment manufacturers
like CSCO) there is the ultimate driving force of increasing
productivity by reducing manpower requirements, and the reduction of
capital required to carry on e-commerce. This adds up to huge increases
in cash flow for those companies well positioned to take advantage of
the new industrial revolution.
So now, tell me about valuations? Those who are stuck in the mode of
examining balance sheets to try to figure out value will never get it.
They are like the Rebels who continued to hoard Confederate money
following the Civil War -- convinced the South would rise again. They
just didn't get it -- the war is over. |
