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

To: E_K_S who wrote (58497)	11/15/2016 8:44:03 PM
From: Graham Osborn	Read Replies (1) \| Respond to of 78751

General comment: Everyone has rules, and I won't fault you for following yours. But as I have said many times in the past, I think that using P/ B and P/ E as the primary metrics for evaluating an investment (as the GN does) is a profoundly oversimplified methodology that is likely to lead one up the garden path in many an instance. I always start by plotting revenue, tangible book, and LT debt for as far back as I can get them. If the company is taking on a lot of debt, I already know the "P-numerator" metrics are going to be mostly worthless. Then I run through a set of balance-sheet and operating ratios: Cash/ Cap Debt/ Equity Price/ Tang book EV/ Rev EV/ EBITDA EV/ FCF Operating PE PE Profit margins ROE/ ROA/ ROIC 5-year revenue growth 5-year tangible book growth Once I review the spot ratios I trend ratios over time. A given ratio at a given point in time provides almost no information by itself. Conversely, a full time series for all the ratios (and other industry-specific variants) can provide useful information. Traditionally I use the comps/ EV method to derive my actual valuation. But since comps are usually correlated, I view that result as just one more input in the overall judgement call. I often found that GNs tended to suck me into heavily indebted cyclicals and industrials - an observation I find holds true for you as well. There's nothing wrong with such a diet, but I prefer to be more omniverous. Nowadays I mostly ignore stated book and earnings, so the metric has extremely limited use for me.