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

To: Jurgis Bekepuris who wrote (29127)	11/30/2007 12:43:50 PM
From: Paul Senior	Respond to of 78520

"Do I really want to trust their analysis after that?" I agree. "There are numerous ways to come to come to a valuation. A tool we use is comparing the earnings per share ($1.12) to the current rate of return for US government bonds (4.52%). According to many analysts this gives the intrinsic value. This showed the stock almost 50% undervalued. However this is not close to exact and shows what the company is relative to the return of govt bonds. This is another confirming idea, but Warren Buffet uses the formula of discounting future earning discounted to present value." I could not understand what they were saying. Which struck me odd, because I would've believed by now, I would've at least been exposed to how most analysis is done. I've no clue how or why US government bonds can be compared to a company's eps to come up with the company's intrinsic value. (Now if it were the company's cost-of-capital that was in there somehow too, well maybe. I don't know.) I've never heard of the "many analysts" who use US gov't bonds to calculate intrinsic values of specific stocks. I know that there've been people who compare bond rates to overall S&P earnings yield (and/or maybe S&P dividend yields) to determine if the stock market (or specifically the particular S&P index) is under or over valued. But US bonds used for specific stocks?? Got to be careful about Buffett using discounted cash flow analysis. I read that Charlie Munger said he never saw Buffett actually calculating discounted cash flow for a stock. It's possible, I am guessing, it's a more talking point than an actual action (calculation) that these guys do when coming to a buy decision on a particular stock. Regardless, FNF could be a buy opportunity at current price. I don't know.