LC

I might move there just hoping to learn a bit from you via city-wide osmosis.

How do you reconcile your statement attributed to Buffett vs the claims that he has rarely (never?) used a DCF model...do you think (as I do) that it simple a mental framework in which to analyze an investment?

Doesn't Charlie also own Costco?

87.2 m is the present value but you must account for inflation and sovereign risk. Probably something around 75m. This example is in a sphere of unreality; so no inflation and no sovereign risk. I'm curious how you arrived at $87.2 million? Wasn't thinking straight. That number is simply the present value of 1bln discounted at 5% over 50 yrs.

87.2 m is the present value but you must account for inflation and sovereign risk. Probably something around 75m.

Why pay anything for it? If I have 1.3 billion, why would I spend it to play with 1 billion, when I can just keep it and play with 1.3 billion.

I will throw in a recommendation for anything written by Vonnegut. His take on humanity is both brilliant and entertaining, and his writing style is addictive.

I read of a fund which reimburses historical incentive fees for poor performance. Unfortunately I can't recall the fund off the top of my head.

hellsten, I agree! Strayer and WTW are very similar in mind-share. I think we discussed WTW prior, as well. Coincidence! Here you have two industries which consistent effort by the customer is required. Students must go to class regularly, dieters must constantly manage their food intake and exercise. Most people don't want to do this! We are biological creatures, and we gravitate to spending the least amount of effort for the same result as possible. I will add that when required to expend energy in such a manner, it better be worth it! This is where the moats come in. Both brands have quality reputations. Dieters know WTW works, and students know STRA provides a quality service. Therefore they can convince themselves that, if they are required to spend their energy to diet/study, these companies will provide the best results. IMHO Strayer is a more certain investment. I say that because there is no "low-cost" solution that provides the same quality. With WTW, we have seen the advent of app-based diet/exercise programs.

In my view, FCFE is the cut and dry cash in and out of the business. All non-cash expenses are included, including working capital and financing costs. Owner's equity I view as the cash-adjusted Net Income. I will include financing costs if they are necessary to the regular running of the business. That is, it's a real cost to have to pay a $20m financing cost up front. Amortizing it over the life of the debt is not a true cost. I will not include working capital adjustments because the changes in cash there are for the regular running of the business.

Linked is the letter I believe you are referring to: http://www.hoisingtonmgt.com/pdf/HIM2013Q2NP.pdf I'm not sure I buy the low inflation argument. His thesis is that there is no evidence of any forces which could raise inflation. Commodities are cheap and the USD is strong. However these are both backwards looking observations, there is no argument of why commodities will stay cheap and the USD will stay strong. I agree more with his arguments on GDP as the playing field for innovation and GDP drivers increases with each passing day. Somehow I don't buy that the most productive thing society can create these days is iPad apps... Put this together and I have no real thesis on where interest rates will or should be. How much free capital is there in the system, is the real question.

If you're looking at a rising interest rate environment...then why?

Dazel, how do you feel about UCP being more of an "obviously undervalued" investment vs PICO? The situation reminds me of Exor vs. Fiat...Exor being the holding company which has a large investment in Fiat and is undervalued on a general level, but Fiat seems easier for the market to understand versus a holding company as a pure-play. If the real estate owned by UCP is on the low end of your range (i.e. 300m)...you're looking at a dollar selling for 80 cents. PICO on the other hand has more uncertainty regarding valuing Vidler's assets & what margins the canola plant(s) will be working with.

I order the K's from the company, I never read them on a screen. For the Q's and other filings I use an Ipad. I've tried kindle, computer, laptop, etc...the Ipad with retina display is IMHO the best substitute for paper.

I did work on SWHC. Liked everything I saw but had no insight into the most important factor, which as you say is whether demand has spiked temporarily or is the "new normal". I have no idea, hence the too hard pile. Maybe the way to approach it is to look for a level of downside protection in the assets, normalized earnings (i.e. assuming that current demand is temporary), and brand value. If you value those factors within the current market cap range, that could be a good thesis for a purchase.

They're on my "zen" to-do list once I finish "Zen and the Art of Motorcycle Maintenance" ;D

I don't know if you are right or wrong about this statement. But is there evidence to back this up? Quotes? I don't think Buffett would do anything more complicated, like using a spreadsheet, to estimate intrinsic value. He probably takes owners earnings (normalized) and uses a multiple that he finds appropriate. He might compare a business to a 10-year treasury and work from there. Businesses he invests in usually have durable economic advantages and steady cash flow generation, which makes intrinsic value estimation a bit easier. I also read something about a 15% hurdle rate. He might be looking at owners earnings [normalized]/EV. I don't think he is contemplating between a 12 vs 15x multiple. I think he reads everything he can get his hands on about an investment and then makes an intelligent and fair estimate at what it is worth. Discount it for a margin of safety and he has his offer price.

Not yet...spoke a bit on PM!

I'd recommend reading this speech: http://turnkeyanalyst.com/wp-content/uploads/2013/02/Williams-Trying_too_Hard.pdf Some of my key takeaways (and a humorous line): -Confidence in a forecast (or valuation) comes from the amount of information we put into it. However the accuracy of your forecast/valuation stays the same. -Respect the virtues of a simple investment thesis. Successful investments must have a simple thesis, by nature. -Complication is evidence of a poor thesis Now for the humorous line: "An investor without a forecast is like a fish without a bicycle"

Owners earnings I define the way Buffett does, net income + depreciation/amortization - capex + certain non-cash charges. I don't make an actual calculation in terms of assigning a Growth rate and then picking a discount rate to do a DCF. What I do is figure out the past history of owners earnings, look at that in terms of how much capital is employed to achieve those earnings, and (here's the rub), hope to know enough about the industry to know how certain those owners earnings will be in the future. Whether they will grow (tailwinds or superior moat) or shrink (headwinds, poor operations/management, poor economics vs competitors). And I try to keep I very general. I'm not looking to get so specific. That is, I'd rather be rougly correct than precisely wrong. I think if you know enough about a business and the environment in which it operates, and you have a history of how well the business has done in the last ten years, you can come up with a rough range under which that business would sell on a fair basis. Coke makes about 7-10 billion/ year in owner earnings per anum. It's worth somewhere in the 150 to 225 billion range, at my guess. I dont know whether its 159b or 203b. But in a sale, today, it would fetch somewhere in that range at my best educated guess. And At a price below that range you have the opportunity for exceptional returns, that's all I'm trying to do. Why 150-225b as my valuation? Well, compare the certainty of earnings to a government bond. At 150 billion, that 7b of earnings represents a 4.6pct return. At a 225b valuation, that 7b of earnings is a 3pct return. That equates to slightly higher than a t-bill, which is due to the certainty as a business which those earnings have.

My process is generally this: Read annual reports Try and form a rough understanding on how the business works and where it is going Figure out the last 5-10 years of owners earnings, and what the company has done with those earnings Then I actually write up a conversation between two hypothetical parties, a buyer and seller, for the entire company. I'll start with something like, "I'll offer you 10 dollars for the business" to which the seller will respond, "no way, we earned 30 mil last year! How about you buy it from me for 1 billion?" And then from there I just go back and forth zoning in on a reasonable range of what that transaction would look like. And that is my estimate of "intrinsic value" so to speak. At each price point, I write out what the opposite party would say. Something long the lines of, "okay well 150m is a bit of a lowball bid...we made 30m but we're in a growing market, have 20m of cash, another 50m of ppe and working capital, and no debt." Then I just compare to market prices, if there's a fair enough margin of safety I make a decision from there.

Hey, you're in Brooklyn? Want to meet for a drink and stock talk?

Buying and selling within a ROTH won't trigger any tax. Selling in your taxable account could trigger a taxable act if there is a gain (or loss) on the position. But simply buying BRK in this account won't create any taxes due.

As a 27 year old looking to make headway into the industry, there are not enough thanks to give. Cheers, Sanjeev! :)

My perception of the CFA is that, like most designations, it is not a replacement for wisdom, experience, and morals.