Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Ron Bower who wrote (3730)	4/2/1998 10:26:00 AM
From: Kent J. Davis	Respond to of 78525

Ron, I would love to see your list. Picking through the trash ,is lots of fun for me and has proven to be amazingly profitable. You may be more interested in a higher quality stock, trading at a discount and paying a dividend----- ROU a steel company. Now to the Math: Frank Block did some work in the 1960's where he demonstrated what a good management should do to maximize shareholder returns( financial Strategy focus). Above book retained earnings yield the highest return because the market price of the issue will generally rise at P/B * eps: so for a stock trading at 3 time book and earning $1 per share the investor is better off seeing the $3 per share price appreciation rather than a $1 per share dividend. Below book the firm maximizes return by going to max payout. In other words a $1 per share dividend is worth more to the shareholder than $1 retained and resulting in less than a $1 appreciation in share price. I'm not doing justice here to Mr. Block, as he quite the article on this in the March- April 1964 addition of the Financial Analysts Journal. Worth a look. Going a step further, I have found that stocks that are maximizing shareholder return will behave according to the following equation: 1. P/B =(1 + g ) ^ T Where g is the growth rate of book value and T is the investors time horizon to convergence of price and book( in year T, p=b) 2. solved for g g= (P/B)^(1/T)- 1 3. solved for T T= log(P/B)/log(1+g) Everyone following this? Good now look what happens if we assume g is the dependent variable. Pick a P/B < 1, for any positive T that is choosen g is a negative number ( losses) as solved in equation 2. I would think that Paul Seniors stocks- UCR, WES, UNMG fit this model perfectly. I will check this out and report back. ( oh, please keep in mind that losses/ write offs are lumpy and the magnitude of the losses is not the objective here, anticipating them is) Kent