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

To: Jurgis Bekepuris who wrote (43783)	6/21/2001 11:53:47 PM
From: Stock Farmer	Read Replies (1) \| Respond to of 54805

Great reply. No help from here on 401(K) techniques. Does it sound like I am preaching "the" approach? Not intentionally. I am offering up the method I use to determine a fair value for a stock given it's economic value in relation to the market economic value. It is not that much different from yours. You take "P" and divide it by some number related to economic value (more on this later) "E" and then use a fixed rule of thumb 15 to 25 plus you generate an ROE hurdle that eliminates the flash in the pan companies. Mine is fundamentally similar except I compute my economic indicator rather than relying on "E" - pro-forma or otherwise. It is too easy to shift $ from the balance sheet to the income statement, and it's cash flow that matters. Also i don't have to worry about that range 15-25. The downfall is that I have to generate a future spreadsheet of the company's books. But nothing helps you understand the plumbing than crawling around in the pipes. Your ROE screen I suggest is very similar to the G&K screen. The point here is "pick good stable companies", and I think we all agree on this. So I would say we differ primarily in the amount of work it takes. I'm not sure we differ in the value of the product :) Some questions. When you use (E) for PE, do you use pro-forma figures or GAAP figures? Do you trend your results or just use MRQ? I would suggest if you are determined to use "E" to keep a very close eye out on balance sheet deterioration (e.g. adjust E to an equivalence point). What period do you estimate PE over? Spot (4x current Q), trailing, leading? That's neat about target exit price changing based on earnings. Could it trap you in the position? I've seen too many stocks run up only to crash. And the temptation to hold it into the slide is alluring... my Laidlaw... sheesh. I am glad I learned that early not late and on an insignificant dollar amount. So now I have an exit price based on what I will be enthusiastic about taking in the very long term. If I secure the long term early, who am I to complain? One point I like about your methodology: simplicity. Simple is good. Thank you for the detail. John.