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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: RocketMan who wrote (48847)	5/1/2000 7:45:00 PM
From: Benkea	Read Replies (2) \| Respond to of 99985

Rocket: "By Buffet's accounting, KO with a cap of 114B should earn 11.4B until perpetuity, assuming a 10% discount rate." He paid a $16 bil equivalent for his $6.50 KO shares. "Better yet, BRK with a cap of 89B should earn 8.9B instead of 1.56 Oops..." I think our problem is growth assumptions. Obviously, KO is quite overpriced here, but the original analysis was correct at $16 bil. Using the 10% discount rate means those who pay the number generated by discounting the future free cash flows back to the present at 10%, will receive a 10% return if their assumptions of the future cash flows are correct. Even more absurd, how many are buying CSCO today with the 10% expectations going forward implicit in those numbers assuming payout or high return reinvestment rate? You got me on the BRK reference though. I'll have to give some considerations to your "Better yet, BRK with a cap of 89B should earn 8.9B instead of 1.56 Oops..." The first things that come to mind are a) earnings are temporarily supressed through massive marketing of GEICO, intensive investment in Executive Jet, and a trough in the insurance cycle, b) the failure to use "look through earnings" of BRK's investees c) the growth component, and d) that I paid $70 bil.