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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Curbstone who wrote (21363)	3/26/2000 2:23:00 AM
From: Mike Buckley	Read Replies (1) \| Respond to of 54805

Mike, I don't remember the details of the discussion by Moore enough to respond to what he is saying. Instead, I'll respond by agreeing with you that it does make sense to apply a range of discount rates to particular periods of time to get a feel for a range of present value. In other words, if there is reason in your mind to discount the cash flows enjoyed from years #1 through #10 at X% and the cash flows from years #11 through #20 at Y%, that's certainly a valid approach to determining the present value of those cash flows. Is Moore really suggesting that we try to apply a standard valuation metric such as Discounted Cash Flow Analysis to companies that (especially of late) have mocked almost every conventional metric except public perception of value? I think it's more basic than that. An apple tree is worth the value of the shade it provides, its aesthetic value, and the value of the apples it bears every year. Similarly, a company is worth the present value of its future cash flows. In the coldest of terms, companies are formed only to make money and their worth is measured only in the money they are expected to make. That's why a discounted cash flow analysis is and wil always be a viable metric if the assumptions about the future cash flows and the discount rates prove to be reasonable. There will always be valuation metrics of the moment that become popularized -- the price-to-vision metric being no exception -- but the one metric that will remain viable even if it is entirely misused and misunderstood is that a company's worth is the present value of the money it makes in the future. --Mike Buckley

To: Curbstone who wrote (21363)	3/26/2000 10:01:00 AM
From: chaz	Respond to of 54805

Mike, Moore himself states that a static (single percentage)analysis works for a loan but not for a company that has an idea of what it will earn in the short term, but no concrete idea of it's total future earnings. For that, he begins the discussion of how to visualize future expectations, with his series of diagrams starting on page 86. His presentation of 15% is a limited space example to teach what the concept of discounted future value is. If you as an investor not playing a gorilla game saw a stock for (say) $132, you might look at the volume, the momentum, the technicals, and decide that if you buy now, you might get $170 in six months. The GG investor would look at the IP, the Patents, dig around to find some market forecasts from Cahners or elsewhere, and decide that over the mid term, say four years, the company could earn $2 this year, $4.80 next year, $10 - $14 the third year, and $30 + the fourth. So you think the company could earn $50+ during the next four years...commands a PE of (I'm just making this up as I type) 60, so in year four would have a share price, if your analysis is correct, of $1,800. You'd ask yourself if the discounted value ($132) is appropriate to your personal expectations for your portfolio. Chaz