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

To: Jurgis Bekepuris who wrote (27907)	8/27/2007 12:20:31 PM
From: E_K_S	Read Replies (1) \| Respond to of 78752

Hi Jurgis - For me the sell proposition is the most difficult as there are many different measures to determine "fair value". My basic consideration is earnings and a precursor to this is the company's ability to generate free flow cash flow. "Time is the enemy of the poor business and the friend of the great business. If you have a business that's earning 20%-25% on equity, time is your friend. But time is your enemy if your money is in a low return business 1998 Berkshire Annual Meeting With these cigar-butt positions, the company usually has gone through some "black swain" event and no longer generates free flow cash or have any earnings. They either die or can rise from the dead like Halliburton Company (HAL) in Dec 2001 with their asbestos litigation problems. Management is key but it is very difficult to quantify other than looking at their past history. "At what price do real value investors sell?"....according to Buffet never as long as the company continues to grow and generate good earnings. "Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards - so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value." -1996 Shareholders Letter EKS

To: Jurgis Bekepuris who wrote (27907)	8/28/2007 2:31:02 AM
From: Paul Senior	Read Replies (2) \| Respond to of 78752

Jurgis Bekepuris: I say selling decisions, like buying decisions, ought not generally be made based on one metric. For selling on book value, it could depend on what the business roe (return on that book value) is at the time the sale is considered; and/or how long the person held the stock before seeing gains; or if the stock was originally bought on the basis of reversion-to-mean (so the sale presumably would not be until the stock has gone up to its mean value), etc. Buying below cash same. Of course once the stock price rises above cash value, if the stock is a cigar butt, then margin-of-safety decreases and one will consider selling. Again, based on factors and situation at the time. As regards cigar butts, the idea is that nobody - or very few only - see a catalyst or believe the company will improve its fortunes and maybe move up from 1x to 2x b.v. or 1x cash to 2x cash. That's why such companies' stock prices are cheap. And why it's best to buy a package of these companies as they become available. Because many times, they won't improve their fortunes. With cigar butts, one bets one's winners do better than the losses sustained from the losers. Historically, that has worked. At least for Ben Graham and disciples. All jmo of course. ----------------------------- "For me selling is simple: I buy when I expect 15% conservative annual return, I sell when expected return drops to ~5%." What is a 15% "conservative" annual return, and how does it differ from other types of 15% annual returns? When you are talking about a 15% annual return are you saying that's the return YOU are expecting on your investment $, or is that the return you are expecting the company to achieve on it's equity?