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Not sure if this was posted already: http://www.scribd.com/doc/238132453/Sequoia-Investor-Day A good read as they discuss how they think about a variety of businesses.

Nate, thanks. Very informative as always. Also thank you PM and bookie for potential outlets to find other deals.

Thanks for that link. Marketability isn't a huge concern to me, but key man risk is. I'm also very curious about the brokers who are selling these deals. I assume the diligence they do is minimal at best. Therefore the buyer needs to work with the seller to obtain accurate financials information, client/vendor lists, etc. I want to be prepared before I engage a seller in a round of due diligence, and also know what to look out for.

Thanks for posting your experience, ray. What are the red flags that immediately tell you to pass? Part of what I'm trying to figure out is how to best filter through these. With public companies it is a bit easier because financials are usually spelled out cleanly and there is a lot of information as to industry dynamics.

Has anyone looked into buying local businesses? I periodically browse biz upswell.com and there are businesses, albeit not great ones, selling for 2-4x cash flow. The seasoned appraisers here will argue there is a reason for this (commodity businesses, geographic concentration, etc.) but for something like a convenience store or coffee shop, I would imagine it's not hard to manage. Does anyone on the boards have experience with this, or know of obvious pitfalls to look out for? Just curious, TIA.

I'm glad someone figured it out. The whole premise of an economy is centered around the owners of production "renting" the labor from "freed" folks. Turns out it's cheaper to pay someone a wage then actually owning them since wages can deflate in real terms, but having to feed, clothe, and put a roof over their heads actually keeps up with inflation. Karl Marx alluded to the final steps of capitalism is to completely displace human labor with machines in his Communist Manifesto. Of course the workers will feel disenfranchised and rise up beginning the age of communism. Pretty amazing foresight from someone writing in the 1800's. Maybe for society this is true, but take the business owner's perspective. I see it a lot like Buffett talking about Berkshire back when he bought it. All the textile mills buy new equipment to lower their cost but never see any of the margin expansion due to competition...all the cost savings eventually flow are passed on to their customers. Therefore a monopoly business would benefit most as they don't have as much competitive pressure to pass these cost savings on.

Find out which monopoloy/oligopolies this will impact. More competitive industries will most likely pass the cost savings down the line.

Re #2 You probably know this but in case you don't, if you click the "new" icon next to each thread it will take you to the oldest unread post in that thread.

Also screening is just one tool in the toolbox. Sometimes it doesn't turn up obvious bargains like Apple when it was 400/share (pre-split). Cash adjusted p/e was really low but a screen wouldn't show that. That's why I use business metrics, make straightforward adjustments (excess cash, accrual vs cash flow, etc.) to find a rough multiple for the business, and then try to decide whether any "cheapness" is due to temporary or permanent issues.

I really only look at screens for business metrics (margins, sales growth, etc.) and not valuation metrics. So I wake up one day and say, today I feel like reading about a company with really nice gross margins, let me go find one and see what it looks like.

It's for publicity.. Net assets peaked years ago at 1,494, now at 1,177 I tend to agree. I also think getting his name/fund in front of cameras was a contributing factor in his opposition to the KO compensation package.

To me that depends...what does more good, feeding 1 hungry family today or 100 hungry families in 10 years? How the heck does one even answer that? I don't know and so I try to do a little of both, I suppose.

I find giving to charity helps, because it reiterates the point that SD regularly makes: money is the servant not the master. Pick a % or dollar amount to regularly donate that you can afford and stick to it, it's worked for me in terms of redefining the "value" component of value investing that goes beyond just money in a brokerage account. Pretty much the "tithing" principle that Packer mentioned...it's been part of human history for millennia because it adds value for society and for yourself.

No you're not :D

Good read, thx CorpRaider

That's only one possible reason. Other times the parent company can be undervalued as its true earnings power emerges. The general point is that spinoffs create confusion as investors have to decide which of the parts they want. The enterprising investor can do the work and see which parts are more attractively valued.

RIP... His most endearing moment (to me) was when he named his daughter Zelda. From that moment on I knew the guy was a good one.

Probably in the too hard pile. It is for me, anyways. Warren B. has boatloads of cash sitting around, and meanwhile here in Amazon we have the low cost retailer of the present and future. Even if he was "right" or "wrong" about investing in Amazon 10 years ago, why doesn't he pull the trigger now? Maybe he just hates retail? Who knows! C'est la vie. Edit: i think my point is...it's annoying enough to figure out why I personally did or didn't buy something. why waste time wondering why someone else does or doesn't do something!?

Hard using historical financials because the future is much more variable for these guys than the only grocery store in town.

I frankly don't think legal prostitution will increase healthcare expenses. I think it will increase visibility of safe sex. It reminds me of college drinking, it's a bigger problem in the states where it's illegal than Canada where the age is 18. Also if it's legal, women will be incentivized to maintain a a STD- free status and therefore take proper precaution.

My two cents is for legalization. But some things in this country take centuries to change. See minority rights, gun control, etc. Progress is slow, and I think for the case of prostitution, probably the slowest...

Momentum, to me, seems like it generates capital until it loses a bunch of capital. Value seems to preserve capital.

I am reading through the fifth book of the Night Watch series. Much fun! :)

I'm curious how forum members conduct research on management/family owners. There have been a few threads where I wonder, "how does he know that?" For example, some family-owned company go through..."family issues", and if I see a board member post about that it makes me curious how much information is gathered. I am sure talking to ownership or management provides most of this info but I am curious if there are any other methods people feel comfortable sharing.

what does the asset base look like? is accrual accounting messing with the ROIC? is cash return > wacc? any opportunities for lowering the wacc which the market may be pricing in? are margins at normalized levels or is there opportunity to expand them? just random questions to think about!