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

To: James Clarke who wrote (762)	12/24/1998 1:36:00 AM
From: Chuzzlewit	Read Replies (2) \| Respond to of 4691

James so you have conceded a value investor at least knows what he is talking about. I make no such concession about value. If you can tell me what the value of a bbl of oil is, then I will concede you your point. Typical value investors focus on balance sheet items and historic earnings. The reason I used the gold company was that it provides us with a simple and glaringly obvious example of the shortcomings of that kind of investing. Sorry if you found it juvenile, but I think it is a much more sophisticated model than you are willing to credit. There are really two forms of value investing. The first is to determine the market value of the assets, subtract the market value of the liabilities, divide the resultant number by the number of shares outstanding, and there you have it. Apart from the obvious difficulties in the investor (as opposed to an appraiser) determining those values, the implicit assumption is that the company would break up if it's stock fell much below that floor. If you believe that I have a bridge to sell you! The second form is to assess the company's eps growth potential. Of course that does not preclude considerable making sure that the company is viable, has acceptible levels of debt and is well managed. Those are absolutely necessary conditions for any company I invest in. And that is why I am obsessed with cash flow analysis rather than slavishly watching earnings. SAnd that is why I always look to 10-Ks and 10-Qs to note large discrepencies between <provision for income taxes and income taxes paid. And that's also why I watch off-income sheet expense items like employee stock options granted. Nowhere did I say my past returns justify buying Dell. The focus was not on my returns, but the firm's returns.