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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: Reginald Middleton who wrote (242)	4/23/1998 3:41:00 PM
From: Berney	Read Replies (1) \| Respond to of 1722

Reginald, I'll let you and Wayne handle the discussion of CAPM as I have no knowledge of the subject. But, I believe your jump to your conclusion to be rather strained. <As for Buffet, I am sure he is a terrific investor, but many of his followers fail to take into consideration the momentum and size of his capital, which serves to drive his returns. They also fail to take into consideration his active involvement with mgmt. which has a lot to do with success and failure (think of the terms he got on the Solomon preferred, then think of the control he had when Solomon got in trouble). Soros, whose stated returns appear to be greater than Buffet's, does not get the same reverence or respect. I wonder why...> It seems that for years folks have been trying to put forth the proposition that Magellan's under-performance was due to its massive size. Most of my general reading has indicated that size is a disadvantage not an advantage. I believe that his superior returns have more to do with his astute observations and timely acquisitions, which creates the momentum, and not the other way around. To use the Solomon experience as indicative that he takes an active role in management is flawed. He clearly viewed it as a role he did not want and exited as soon as possible. His active involvement was necessary to protect "his" shareholders and their investment. Would Soros make a billion dollar investment in a company and then hand the voting rights to the shares back to the management of the company? I'll be honest that I haven't seen the published performance record of Soros. But, certainly you don't mean do imply that they approach investing from a same perspective? Buffet[t] has made Buy and Hold an investor reality. He's not generally thought of as one who is into quick, speculative plays. Soros on the other hand, well ... I'd like to see their portfolio turnover statistics. Again, the discussion is interesting, but the conclusion was a stretch. Berney

To: Reginald Middleton who wrote (242)	4/23/1998 7:29:00 PM
From: Freedom Fighter	Respond to of 1722

Reginald, >As for Buffet, I am sure he is a terrific investor, but many of his >followers fail to take into consideration the momentum and size of his capital, which serves to drive his returns. They also fail to take into consideration his active involvement with mgmt. which has a lot to do with success and failure (think of the terms he got on the Solomon preferred, then think of the control he had when Solomon got in trouble). Soros, whose stated returns appear to be greater than >Buffet's, does not get the same reverence or respect. I wonder why... Reginald, As a shareholder of BRK since 1988 I feel obligated to defend the man that has made so much money for me. What you say about Buffett having certain advantages is true. On the flip side, he was once small. He even says his returns were higher when he was running less money. Size has both advantages and disadvantages. Running billions of dollars of cash is awful tough. He must not only find good value, he must find it in a company large enough to take a meaningful position. He must then conceal it for long enough to complete the accumulation because guys like myself want to jump on the bandwagon. (inevitably driving up the price and removing some of the value) If he says he had it better when he was small and noone knew him, that's enough for me. As to Soros. He gets a great deal of respect in my view. There are also many articles etc.. about him. I suspect the difference is that Buffett is considered an investor using a methodology that average people can employ. Soros is more of global macro guy with insights that are really not possible to duplicate for most people. His high returns are also the result of some heavy leverage.

To: Reginald Middleton who wrote (242)	4/23/1998 7:50:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 1722

Reginald, When I do use CAPM I use the 30 year and +5.5%. I will reread the 20 year bond case. 5.5% is the number I have seen most often. 5.8% is a new one to me. If it is most commonly used now, thanks for the tip. I will need to research further. The CAPM model I got from Mckinsey was actually quite sophisticated in my view. We may be talking about a different spreadsheet. The reason I say so is that my girlfriend is in the business and does spreadsheets for a firm that manages money for some very wealthy and famous clients. While hers are of extraordinary quality (she's watching me type this) in some ways they are not as good as the Mckinsey model. If hers are good enough for billionaires..... <Small changes in the terminal growth rate assumptions, like will it be 5% or 6% or 6.5% can produce dramatically different conclusions. Let's face it noone knows these things.> >No one knows anything about the future. This statement applies to a >lot of topics outside of CAPM and DCF:-) I do agree with you on this. However, this particular issue always gave me the most trouble about the model from an intuitive point of view. The terminal/residual value makes up the largest percentage of the ultimate calculated value, yet it is based on the least knowable thing (the distant future). The difference in your result between the assumption of 5% or 6.5% is absolutely dramatic and often enough to be the difference between a sell or a buy conclusion let alone a buy/sell or hold. What do you use and how do you determine it? I have developed my own ideas about how to handle this.