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

To: Paul Senior who wrote (27920)	8/28/2007 10:57:17 AM
From: Jurgis Bekepuris	Respond to of 78753

Paul, I think you gave a fair and good answer. I guess it shows why I don't do much "pure" ;) value investing: not only I have to buy at/below book/cash, but I also need to estimate the future. I have some confidence of doing that for companies with historically high ROE (Buffettology companies) but not generally for cigar butt companies (historically spotty or low ROE). From this discussion I think, I will stay with my core competence of investing mostly in Buffettology companies and only go with cigar butts when I do see some catalyst/future where they may increase from <1x to ~2x book/cash. Not many of those, though. ;) For your question: ----------------------------- "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? -------------------- I buy companies that show expected annual compounded rate of return of 15% in Mike Burry's Buffettology spreadsheet. Specifically cell B31 of it. ;) It is "conservative", since it uses the low PE in 10 years. Of course, the inputs for Mike's spreadsheet (ROE and PE pretty much) have to be guessed/chosen by the user. For most cases though, I just use 15% ROE and 15PE. :) The real work then is choosing companies to which this can be applied. I only work with companies that show >15% ROE for (most) of the 10 past years with low debt/equity ratios. But this is just the quantitative part. I may relax it if the qualitative part (company/field) is attractive or may tighten it if the company/field is dicey. As you know, I don't buy financial and insurance companies.

To: Paul Senior who wrote (27920)	8/28/2007 6:09:19 PM
From: Jurgis Bekepuris	Read Replies (2) \| Respond to of 78753

Just to expand a bit on what I realized from this conversation (and since I wrote it anyway): Looking at p/book or p/cash in value investing carries a very simple meaning: if you take a thing, not a business, p/book is a very simple measure to check whether you are buying it for cheap or not. ;) Of course, there's a catch: if you are paying price P1 for a thing and someone tells you that its book value is P2>P1, you start to wonder why is the seller not selling it for P1? ;) But market is much more complex for businesses, since you can't simply say "I sell everything" and liquidate. It is still not a meaningless measure, since if you can buy a business for < book (P/B<1), then at least theoretically management can liquidate the company and pay you more than what you paid. What people have correctly observed though, is that for company to sell at P/B>1, there has to be some expectation that its business will prosper. You cannot just expect a crappy company rise from P/B<1 to P/B>1.5 or so by some miracle. One could expect for a company to rise from P/B<<<1 to P/B~=1 just because of liquidation possibility, but even these events are rare and mostly come with bankruptcy risk. So it is very reasonable for people to ask: what are business prospects of a company that you bought for P/B<1? And since my answer in a lot of cases is "don't have a clue", I am not going do be doing much of P/B<1 investments going forward. BTW, homebuilders are an exception. ;) :P :/ 8} \|\