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 : Buffettology -- Ignore unavailable to you. Want to Upgrade?

To: James Clarke who wrote (777)	12/24/1998 3:32:00 PM
From: jhg_in_kc	Respond to of 4691

James, are we having fun yet? Happy Holidays to the Buffetology thread. jhg

To: James Clarke who wrote (777)	12/24/1998 4:33:00 PM
From: Chuzzlewit	Respond to of 4691

James, try this for a source: Valuartion Copeland Koller and Murrin, John Wiley and Sons, 1996 ISBN#: 0-471-01313-7 I have yet to meet one academic economist finance person who believes in the intrinsic value concept of a firm. I suppose that it is possible that there are some, but I have yet to come across any. About 15 years ago I worked in the development of derivatives based on small equipment leases. In order to make these debt instruments salable, we needed to insure the underlying assets (the leases) which in turn required us to ask the question about the value of the equipment after certain periods of time. That meant a great deal of time spent with professional appraisers. Their valuations were based entirely such concepts as "forced sale" (unwilling seller), "willing buyer and willing seller", etc. Not one of these appraisals ever dealt with the concept of intrinsic value of the equipment (which I presume would be some permutation of depreciated "value" of the equipment). You asked When you said before that the value of a stock is the value of its future cash flows discounted back, what is relative about such a valuation? Yes, interest rates certainly inject relativity into the calculus, but so does uncertainty. For example, changing economic conditions may not change the mean value of predicted cash flow, but they sure could change the standard deviation of those predictions. And then there is the recurring market melt-down. Here, lower market prices were motivated by the fear that we were headed into a recession (which translates into sharply lower earnings), or that the Asian problems would severely impact our economy for a lengthy period of time. In other words, there was a sudden shift if the appraisal of what those future cash flows would be. Now if you are going to argue that discounted cash flow is really a measurement of "intrinsic value", then our disagreement centers on definitions, which I think is a pointless and bring debate. When I talk about "intrinsic value", I mean those valuation techniques that center on balance sheet items and historic performance metrics. If you know of a simple word or phrase to distinguish these two approaches I think it would be helpful for our discussion. You said ... and yes [there are] even investors who believe firmly that a cash producing asset has an intrinsic value Certainly, that's what the fixed-income market is all about. Very simple. Credit rating is known, cash flows are known, the EV is known. But firms are different. But here's something of a twist. Let's say that a bond earns 5% per annum. Lets invert that sucker and make a forward looking P/E out of it -- 20. Now, how much of a premium is growth worth? TTFN, CTC