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

To: Freedom Fighter who wrote (11780)	1/10/2001 5:28:12 PM
From: Paul Senior	Read Replies (4) \| Respond to of 78476

Imo, this thread would be about the best place to come for a balanced look at cash flow. We've got a goodly number of people here who, IMO, can and do use cash flow in their analyses and importantly (to me anyway -g-), who are able to pick and hold stocks that go up (and share those picks with the rest of us). They possibly attribute some of their success to cash flow analyses (I am guessing - I don't know). I will include in this group "the usual suspects" -- Wayne Crimi, Twister, Jim Clarke, Mike Burry, maybe Bob Rudd -- and others who can and like to take apart a balance sheet. And I know there're more out there whom I forget, who are equal to the task, but don't post so much on the topic that I can remember -- maybe Madharry, LauA, RJM, or J. Bash, S Emmerich, one of the Davids, others. I have a question for you cash flow-ers: Why are you guys not doing the detailed work and study that TimbaBear proposes for himself? Or if you have, give him the darn formula already that relates cash flow to valuation. (And send me a copy too.) Because I am saying it's too much work for too little reward. Nothing against the learning experience, but the effort ignores a large body of literature. For example, in Tanous' "Investment Guru's" the only mention of cash flow is the discussion with Mario Gabelli, where Mr. Tanous says, "EBITDA...also sometimes loosely referred to as 'cash flow'... Most private market purchasers look at EBITDA multiples in preference to pirce-earnings multipes." And Mr. Gabelli says, "Ideally, EBITDA margins will grow, but you don't need that. In that framework (aside: discussing a business franchise that grows), cash flow is used to reduce debt, enhancing the enterprise value." In Marty Whitman's "Value Investing", he says "The common definition of cash flow as EBITDA is a mere start. A good analyst then has to examine the use of proceeds from EBITDA..." But a page prior to that I read the confusing (to me) statement, under "Do earnings and cash flows have primacy?" section, "In value investing, earnings and cash flows are not the main focus. Resource conversion and access to capital markets at superprices are at least as important." If I am correctly understanding David Dreman's chart "Four Flavors of Value 1970-1996 (p. 155, "Contrarian Investment Strategies, The Next Generation") which uses Compustat supplied data for the 1500 largest publicly traded stocks, we have, "Average Annual Returns" for four types of investments as: Low P/E 19.0 Low P/CF 18.0 Low P/BV 18.8 Low P/Div 16.1 Market 14.9 Which gets us to his Rule 14: "Buy solid companies currently out of market favor, as measured by their low price-to-earnings, price-to-cash flow or price-to-book value ratios, or by their high yields." Isn't that what we are trying to do here? And aren't the cash flow numbers given by various internet sites as EBITDA a decent approximation or a very good start for cash flow? And some sites even give "better" or adjusted cash flow numbers. ------------------------- TimbaBear's discussion topic is a subtopic within my overall issue and confused state about why value investors seem (imo) to feel they must put a personal spin on value investing---- why not many at all seem to want or are able to follow methods in the ways they are documented by the superior investors whom we admire. Paul S.