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

To: E_K_S who wrote (37915)	5/16/2010 1:30:13 PM
From: Spekulatius	Read Replies (1) \| Respond to of 78481

re Buffet rule - why would debt/ revenue ratio be a good indicator? I would propose EBITDA/Debt ratio. Debt/revenue is misleading - you could get the same ratio with an extremely low margin (wholesale) and an extremely high margin business (think pharma). The latter would probably now problem with debt at all, while the former would sink.

To: E_K_S who wrote (37915)	5/16/2010 8:45:30 PM
From: Paul Senior	Read Replies (1) \| Respond to of 78481

Brings up what the main purpose of rules is. To find stocks? (Screen?) To value stocks? (Just rhetorical questions) All rules have exceptions, as you say. Pabrai has written he has a checklist he goes through for each stock he's considering buying, and no stock has yet got positive checks on every item. I just like to keep it simple, in order that I don't get constricted and either find no stocks that meet requirements or else have to make a number of judgments as to which requirements/when are okay to be violated. So something like an encompassing "Buffett checklist" is not for me. I'll not use debt/revenue as a screening requirement. It's a positive though, as I've suggested here many times, that people judge value in different ways and with different weightings. So that when several people do agree on a stock as a value buy, and do buy it, then I can generally conclude, it's likely to actually be a value (assuming it also meets my value criteria -g-), given it's looked at from several perspectives. I like low p/e for a value screening parameter. (Who doesn't?) I don't have an arbitrary screening requirement (like your S&P p/e); I rather compare a stock to itself over many years, and if I can, the particular company's p/e to the sector p/e, both current and historical. That said, looking quickly over my portfolios, I find most stocks well below 15 p/e. Fwiw, it looks like most p/e > 15 are, for me, in these categories: limited partnerships, health care, money managers, foreign banks, auto retailers, tech.