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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Don Earl who wrote (11736)	1/6/2001 10:52:31 PM
From: TimbaBear	Respond to of 78845

Thanks Don for such an detailed post! First there is NO substitute for reading the filings I couldn't agree more with that statement and that paragraph. If a company is really generating that kind of net earnings, debt should be almost nonexistent. Actually, that's exactly right....most of these companies have very little to no debt....I just used the .5 debt ratio to screen out the worst of the offenders....sometimes heavy debt can be justified in the capital intensive enterprises....CCL comes to mind, it takes 400+ million to build a new ship, so they borrow the money and pay it off when the ship is operational. You make an interesting point about long-term structured debt like preferred and convertibles....I'll have to mull over that for a while....I mean I see your objection to the dilution of common shareholder rights that happens here, but the leveraging of assets isn't always bad for the shareholder..... Cash flow not including borrowings or sales of securities is probably your best indicator on how profitable a company is. Again, you're absolutely right....in fact, I think you've given me the next step in the process....determine Free cash flow....Thank you! I never thought to look at the Def14A as a management evaluation tool, I'll check that out. I, too, don't think much of P/E, BV, or PEG as evaluative tools. I mean if I see a company has a P/E of 800, chances are I won't spend too much time looking further, but otherwise, these are too "slippery" for me to have any security. Probably the hardest thing to judge is if a particular company or sector has potential "sex appeal" to investors. Well, I guess that depends on my investing objective and time frame. This batch is for a potentially long term holding. Over the long term, quality net nets will provide decent returns if purchased at a good price. Some of them will develop that "sex appeal" maybe, and provide outsized returns. Yes, discipline is the key to maximizing returns and exercising good money management practices. I am learning, I am learning. Timba

To: Don Earl who wrote (11736)	1/7/2001 9:20:37 AM
From: Madharry	Respond to of 78845

that is one terrific post. thank you. A couple of caveats though. I would say that sometimes seeing a preferred issuance means that at somepoint in time the company has had a major shortage of cash. it could also mean an opportunity. especially if the company is in the technology business. FYI Most major banks have preferred issues outstanding. Usually companies are cheap by historical standards for a reason. Assets are only worth something if they can generate future earnings. if a company has a product that has become useless, the assets used to produce the product are generally useless. earnings reflect what has happened in the past not the future. There may also be some threatening litigation- see the asbestos companies. Lastly management may be particularly unfriendly to shareholders. For example most people who have invested in shares in companies controlled by Icahn, Pearlman, Trump have fared poorly, although at times the shares have looked like bargains. Finally, as one who has suffered from this form of myopia. shares in other companies valuation is too often in the eye of the beholder and have been volatile. What has looked like a huge margin of safety in a stock has evaporated when the price of a major holding has tumbled by 50-80%.

To: Don Earl who wrote (11736)	1/8/2001 5:18:30 PM
From: Bob Rudd	Respond to of 78845

Don: Excellent post. I generally do it in layers - yahoo profile, market guide quarterlies - always checking AR and inventory vs sales growth as well as FCF. I also look at insider activity and what funds own it - ownership by top performing value shops is a big positive since these guys not only do good investigation, but they get interviewed. If a stock has big short position - that's a red flag. While there may be a squeeze, it's usually more important to understand why the shorts hate it. Then I look at the filings to fill in the blanks or find other red flags. Again, great post. bob