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

To: Paul Senior who wrote (3675)	3/27/1998 11:50:00 AM
From: Terrapin	Read Replies (1) \| Respond to of 78666

Hi Paul, "you are implying that everyone else is doing value investing (esp. portfolio rebalancing) incorrectly? " I've read and re-read Paul Levy's post and, frankly I don't see this. I'm still on the learning curve here but my understanding of value investing was to determine a present value, sell when it reaches full or fair value and to include the tax rate when you determine when to sell. I know I'm not telling you anything you don't already know but I didn't understand your response to Paul's post.

To: Paul Senior who wrote (3675)	3/27/1998 12:13:00 PM
From: Chuzzlewit	Respond to of 78666

Paul, if you are a value investor, then presumably you have a way of calculating value. In general there are two approaches: You could look at the balance sheet and restate the assets according to current market conditions and then compare the net worth per share to the market price per share. The second approach is to estimate the the risk-adjusted present value of the free cash flows. This is essentially the approach taken by Value-Line without explicitly telling us how they do it. Any other method is a surrogate for one of the two methods above. For example, if you study a company a great deal you may come to the conclusion that its leverage is too great and you are uncomfortable with it. Well, obviously that is only one inputt that would be used by the present value approach as an adjustment to the discount rate. If you think about it you'll see that all of the frequently used heuristics of value investing are really manifestations of the components of either valuation model. I wouldn't dare to suggest that you are investing incorrectly, but I would suggest that if your buy/sell decision is based on "value" that you have some way of quantifying "value". Once you quantify value the portfolio balancing exercise is straight forward. Finally, let me point out that those "target" numbers that brokerage houses are so fond of publishing are value estimations (albeit set in the future). Regards, Paul