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

To: James Clarke who wrote (241)	8/10/1998 12:56:00 AM
From: Jurgis Bekepuris	Read Replies (1) \| Respond to of 4691

James, I understand that you guys are not bashing my ideas. I guess we all are just driving the point that qualitative and quantitative analysis is very important in Buffettology. Lots of people don't get that... :-( I agree with your "quick check" use of the spreadsheet. Do you also use it to decide to buy one stock vs. another? Though, from what I remember, you have mostly Graham value stocks and not Buffett. PEP. > They're a borderline investment now under the Buffett > criteria, but if they spin off their bottling like Coke > then ROE will go up. I'm with you on that. OK. > BUT, it will not be worth any more unless your > financial case > goes much further than that. > Because return on equity will go up a lot, > BUT THE DENOMINATOR (the "E" - > equity) WILL DROP A LOT AT THE SAME TIME. > What that spinoff would be is > getting rid of a lot of equity with low earnings power > attached to that equity. The ROE will rise, but how much > "E" to have "R" on will be left? That's what you've got > to be thinking about. That's a tough question, and I am not sure I want to spend sleepless nights figuring that one out. OK, in the best case PEP unloads a mountain of debt on the bottler, as they did with YUM. Mike researched YUM, so he should know the pattern. Then they lose equity, but they gain some of it back because they lose debt too. Anyway, I agree with you that the situation is complicated and returns may be marginal. I hold my position but may redeploy it if something much better comes up. I need more time to finish my research on some newer ideas. And BTW, I'm just an idea guy. Crunching through financials, and figuring out complex balance sheets is not my type of thing. You and Mike are much better on that. >Another fascinating thing I find about this Coke-Pepsi > debate is that many investors buying Pespi for the > bottling spinoff story passionately believe > that Coke is overvalued. They can't have it both ways. Not me. The only story that can be told about PEP is that it's relatively undervalued in comparison to KO, so in the future it should go up to KO's valuations. It's as likely that KO will go down to PEP's valuations, so there's not much absolute value. And from the Buffett model KO is much better value than PEP. Good luck Jurgis

To: James Clarke who wrote (241)	8/11/1998 2:01:00 AM
From: Jurgis Bekepuris	Read Replies (2) \| Respond to of 4691

James and Mike, Here are couple more companies that fell into high returns area of the spreadsheet. As always, comments are welcome. SJK. 22% This one is a former high-flying clothing company. The usual risk is change of fashion (as NKE, etc.). I did not see any permanent slowdown mentioned, though they had some production (?) problems last quarter. I'll try to look at this one. DFS. 22% I missed this one. A friend brought it up last year. It's a company making Christmas collectibles with consistent collectors' following, high margins, high positive cash flows. I mentioned its brother ENC on the value thread. DFS has higher ROE, but also is more expensive than ENC. ENC is on a turnaround, but it's far from Buffett numbers. Pick your choice. :-) ROG. 16% No comment. KWP. This one is weird. I think that Michael looked at it. In essence, they are cash cow that is not growing, not buying back shares and not paying dividend. The relations with Oprah are weird, so I think that it's too confusing to look at this company. But if you value it at a PE > 12, it may have a good return. Good luck Jurgis