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

To: Stock Farmer who wrote (43789)	6/22/2001 12:53:39 PM
From: Jurgis Bekepuris	Read Replies (1) \| Respond to of 54805

John, >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. Partially agreed. I have looked at the DCF spreadsheets. Interesting thing: valuation grows rather slowly if I increase the estimated growth year-over-year. However, by reducing discount factor, I get a large jump. I remember that you argued of using WACC as the discount factor. However, now I understand why people are twitchy about varying the discount factor - it makes much larger impact than the growth. BTW, where did you say one can find company's WACC? Another issue with DCF spreadsheets is that you really have a lot of freedom in predicting the future. I'm afraid that greed and fear are obstacles here... :-( >When you use (E) for PE, do you use pro-forma figures or GAAP figures? I don't use E. ;-) Take a look at the spreadsheet - this will make it easier to explain. In essence, the spreadsheet takes current equity and ROE and assumes the future to have the same ROE. So it calculates earnings from ROE and equity. The only place where P/E comes in, is the terminal valuation, where the earnings 10 years down the road are multiplied by PE to achieve terminal valuation. I use 15-25 range there - really 15, since this gives the conservative end - since I don't really believe in nitpicking "this company will have 6 PE, the other one 40 PE". >to keep a very close eye out on balance sheet deterioration (e.g. adjust E to an equivalence point). I am not sure what you are saying here, but I usually don't buy companies with significant debt. >That's neat about target exit price changing based on earnings. Could it trap you in the position? Could be. LU would be one example, although I never bought it. I think that with the current volatile market, I will be pushed out of position long before the top. The question is whether I would buy much above the bottom. Jurgis - Hey, I'd like to be pushed out of some current positions, so I can buy other bargains...