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

To: EnricoPalazzo who wrote (43613)	6/18/2001 3:34:52 AM
From: Stock Farmer	Respond to of 54805

Yes. Buffet's is comparing against T-bill opportunity cost I think. The discount rate accounts for the time value of money. Which is the "bird in the hand not worth two in the bush". The reason for this difference is that there is a RISK that neither birds are ever grasped. But this is different from execution risk. Example: a company can still make good on its bond repayment even if its profitability isn't as high as the bank thought when it orchestrated a bond in the first place. So the bank still gets their money, but the shareholders don't get their value. Generally, this relationship holds: the shareholders face higher risk than the bankers, who want a higher return than the risk free rate. As I said, I prefer to mitigate this so called execution risk by being conservative in cash flow estimates, and then use wacc to provide for a decent profit motive. John.