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

To: E_K_S who wrote (41711)	3/12/2011 11:09:10 PM
From: Jurgis Bekepuris	Respond to of 78751

"Buffett's value formula" is just a bit modified DCF. They added the "confidence margin" factor to DCF and called discount rate "best available return that you have 100% confidence in". Does this make it better than regular DCF? Not clear. On the positive side, it's easier to pick the discount rate - it is pretty much 5-10 year treasury rate. On the negative side, you have to pick the confidence margin pretty precisely. Also, when treasury rate is very low the valuation gets very distorted IMHO. Never trust anyone who tells to buy stocks at 50 PE just because treasury rate is 3%. ;) The rest: growth rate / years of growth are the same parameters as in DCF. You still have to estimate them, which is tough. Regarding "intrinsic value", I don't calculate it. I look more at expected return to see whether the investment is cheap or not. Obviously expected return depends on the future earnings (CF), so it could be possible to calculate the intrinsic value from these earnings. I just don't do it. I also don't think there is a precise "intrinsic value" for a business. Having a ballpark value should be enough to make a decision. :)