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

To: Paul Senior who wrote (11773)	1/10/2001 2:20:53 PM
From: TimbaBear	Respond to of 78476

Hi Paul! for detailed discussion, I prefer the thread entitled, "Free Cash Flow as a Value Criterion" It's funny you mention that thread, I just discovered it this morning. I intend to read all 250 posts, or at least those that look like they have meaningful content. TimbaBear, your post reads to me like you are attempting to find the Holy Grail as you drill down into the depths of the how to's, assumptions, relationships, and relevance of cash flow. Well, Paul, I don't happen to think that there is one Holy Grail, I think there are many. I hope I'm not in search of it, but am able to craft my own at some point. I would like to have one for each area of investing and speculating that I become interested in. Imagine a set of guidelines for each type of investment that have been so well thought out (for that vehicle specifically)and tested that they will always give a superior performance. And to have these guidelines internalized. Perhaps that is "To Dream the Impossible Dream." But what's wrong with that? The worst that can happen, that I can see, is that I walk away from the effort a more informed investor who maybe understands a little more deeply some more of the forces at play in the economic universe. If I'm able to integrate CFO and FCF more completely into my investment decisions, I don't think I'll be hurt too badly financially in the process, and will probably add a better margin of safety to my value portfolios. Don't you think? Timba

To: Paul Senior who wrote (11773)	1/10/2001 2:32:07 PM
From: Bob Rudd	Respond to of 78476

PAUL: I always look at CFO, FCF, and components AR & inventory as a check on quality of earnings. It takes less than 5 minutes. This indicates if there are problems that might soon result in an earnings surprise. I don't do full-fledged DCF valuation runs, however, as the cost: the time to fill a DCF spreadsheet, doesn't appear to yield sufficient benefit given the number of names one looks at to find a keeper. I use 10kwizard because of the alert and search capabilities, but their spreadsheet financials are sometimes off base.

To: Paul Senior who wrote (11773)	1/10/2001 3:02:05 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 78476

Paul, I go back and forth on the issue of FCF vs earnings. What I think the whole valuation issue comes down to is the "cash earnings", the "return on capital" the company can get from reinvesting it, and the business position (risks). If a company is generating a lot of free cash by standard definitions, it can simply mean that there aren't any reasonable investment and growth opportunities available for it at present. (and vice versa) This is something that is constantly changing. There are also disagreements on what constitutes FC. If a company has NO internal growth opportunities at all, but uses all of its earnings plus more to make an acquisition, then in reality it generated no free cash. Its future growth will come from that form of investment instead of the usual capital spending. Yet I see companies like that referred to as high FCF companies all the time. The food group comes to mind here. I simply try to get at the "real earnings" of a company (accounting) and its prospects for deploying that cash on favorable terms. My 2 cents. :-) Wayne