jschembs

Yes, but I believe they could start selling bags of peanuts in their cars so that should dramatically increase their earnings power. Joking aside, you're absolutely right that the current valuation is insane. However, I think it's still a business worth learning about because of the ramifications it will have for existing industries such as the auto manufacturing and auto insurance ones. In my personal opinion, it's also an industry that will change urban travel in the same way that Amazon and others are doing with shopping (there's also an experimental UberJet if I'm not mistaken, which I've heard co-founder Garrett Camp mention). My tentative take is that I think the efficiencies that can be delivered are greater than in retail though, because cars are an extremely underutilized asset. Also, at the moment I'd say Uber are doing the best job out of everyone though as you rightly indicated that too could quickly change. Google self-driving cars for example, could be a real future threat if ever done properly and at scale. I'm not sure their investment in Uber would necessarily stop them from doing that. So yes, this is definitely an interest post and not a pitch. At the very least though, it'll maybe give someone an insight or two into some other industries that could be advantaged or disadvantaged by the company's existence. And at best... they IPO at some ridiculous price, at some point after which the NASDAQ crashes, by which time some of us are prepared and well-informed enough to make some intelligent investment decisions about the industry and the companies in it. That's all I'm saying, really. I couldn't agree more with what you've posted. all good comments, and I'd agree uber makes for very interesting valuation exercises...i haven't read all the way through damodaran's piece yet, but he tends to be pretty rational in his assumptions, and yields a value of about 1/3 of the recent capital raise...

thank you sir. so for uber, with a $17 bn valuation and $125 mm 2013 revenue, we're looking at 136x revenue. seems reasonable, particularly since they face no competition, regulatory hurdles, or expenses.

Here's an article re the AMEX salad oil scandal - a little bit about Buffett towards the end: http://www.businessinsider.com/the-great-salad-oil-scandal-of-1963-2013-11

look at it from a FCF per share perspective...the toughest aspect is estimating future shares outstanding, as that will be a major factor in future equity value... for some reason, GAAP doesn't require firms generating GAAP losses to calculate diluted shares outstanding (i understand they're antidilutive, but that still makes no sense to me why the firm shouldn't have to disclose the effect), so in today's environment, it's very difficult to truly understand the near-term dilution. analyze the footnotes related to unvested stock options, warrants, and restricted stock to get a better sense of future dilution. another thing to consider, as a recent NYT article re CRM pointed out, is that to the extent a share price begins to decline, companies will find it increasingly difficult to pay employees with stock, and so again looking at it from a FCF perspective enables you to determine a firm's ability to meet future opex with a much higher cash component.

That's awesome. I stopped reading after he said investment management must be elevated to a science (while capitalizing Science).

Thanks that's just the vacation home in Germany. I spend a week there every few years. I almost forgot I owned it. I'm so unorganized I had to dig around the house to find the hope diamond to take a picture of it. It was under the couch cushion. Man, the next time you are in my neighbourhood give me a call. Where in Germany are you? I have a family reunion south of Frankfurt next June...

Kraven, I think I won this contest. http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=feye&insttype=&freq=7&show=&time=3 any reward? Yes, you get to tell your friends you bought FEYE at 30 as opposed to 97 three months ago. Actually FEYE wasn't a horrible buy at $97 if you do the math. You take 2013's Free Cash Flow of -$127 million and multiply by -1 to get owners earnings of $127 million. $97 times 145 million shares gets you $14 billion market cap. So 110x times true owners free cash flow for a company whose comps trade at 200-250x FCF. ha ha, love the math...still waiting for a sell side analyst to try that one.

Kraven, I think I won this contest. http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=feye&insttype=&freq=7&show=&time=3 any reward? Yes, you get to tell your friends you bought FEYE at 30 as opposed to 97 three months ago.

How about AWAY (owns Homeaway and VRBO)? VRBO has almost become a verb for folks looking for vacation homes. I know Airbnb is getting all the press these days, but I think AWAY has carved out a pretty defensible niche.

USDTOR, here's a general question I've been curious about: My understanding of GAAP is that a sales discount should be booked either as a contra account to gross revenue (resulting in a net revenue figure), or perhaps go in COGS. Either way, the discount is reflected in gross profit. How easy/difficult is it for companies to convince their auditors that such discounts should be considered operating expenses? Such a maneuver obviously doesn't affect EBIT, but it would artificially boost revenue and gross margin, two metrics upon which the valuations of many of today's rapidly-growing market darlings are based.

Thanks for the comments. I've found shorting to be a helpful tool, although I certainly learned some lessons last year vis-a-vis the chances of silly going to twice silly. I certainly agree on SODI's corporate governance issues, but in this environment I don't see as many opportunities that have the upside from simply reallocating capital. Getting Shevach to listen, however, is another story...

I'll extend my list for further ridicule - short Z, long AIRT and JCTCF

One of the most difficult problems in investing is adjusting a mindset after you've committed to a certain position - particularly after having spent countless hours supporting your thesis. My point here is to create a punching bag for those of us who could use some counterarguments. I propose posting your "highest conviction" positions for ridicule to the board. I'll start - short CRM, long SODI.

Good point - I didn't mean to imply you should blindly use EBITA (I actually prefer EBIT over EBITDA or EBITA), but that the A is not anything like the D in terms of future cash requirements and their impacts on FCF and ROIC.

huh, you sure about that? I distinctly remember Munger calling EBITDA bullshit earnings (I presume you mean EBITDA) And I am sure Buffett feels the same but would be so explicit in his description. I'm pretty sure he means EBITA. It's the D that should not be added back to measure cash flow (unless making an appropriate adjustment for ongoing capex). The A is typically related to intangible assets that do not wear out.

I heard he was giving out a stack of 500 pages plus a quiz about the material. If you answered the quiz right and gave it back to him by the end of the day he'd give you a secret stock tip. Word going around Omaha is "c c b d a a d..." I thought it was up up down down left right left right b a select start?

You could read those two books, some Peter Drucker, the McKinsey valuation book, and a good accounting book and you don't need an MBA.

Thanks for posting!

Share buybacks have nothing to do with the value of the shares. In many instances, buybacks are executed merely to offset option dilution. You need to read the management's rationale for repurchasing shares to form an opinion as to whether said buyback is in the shareholders' best interest.

Value of deferred taxes.

I've had that list printed out for a few years, a great thing to periodically revisit. Much more useful than Buffett's "never lose money rules 1 and 2," which I've always found to be complete BS and unrealistic. Obviously as a value investor you want to be cautious and avoid losses, but most of my greatest investments had 5-10% losses (or more) initially before turning higher (or lower in the shorts' case). Given most of us have a counter-trend approach, it's highly likely you'll experience some paper losses as you build your position.

I view a "good capital allocator" as someone who shows acumen in determining the proper use of cash. Blindly repurchasing shares is not a sign of a good capital allocation.

I think the holy grail of investing is identifying at a relatively early stage superior businesses led by CEOs who understand capital allocation. This is easy in retrospect, but very difficult in advance. I'd love the board's thoughts vis-a-vis the most important factors to getting comfortable that you may have found the next Henry Singleton. Here are my initial ideas: 1. High ROIC business with moderate growth prospects. Obviously more growth opportunities are better, but I believe sustainable ROIC is more important than growth. 2. Management interests aligned with shareholders - no (or minimal) stock comp. If there is stock comp, it is based off of economic earnings rather than EPS or EBITDA. 3. Significant management equity ownership. 4. [Here's the hard one] CEO who clearly articulates his/her approach to capital allocation, and that it's consistent with the Outsider CEO perspective. Other thoughts?

I've written a few articles, although it's never been for the money. I like the feedback I get, although you must separate the wheat (fundamental investors who know more than you do about the subject at hand) from the chaff (day traders and other trolls). Also, I don't have my own blog set up, so it's a great forum to make you clearly articulate your arguments in a concise manner. Honestly, I feel like the quality of the articles and comments have declined substantially over the last year. I don't spend much time on SA these days.

Retarded, ego thing, WHY in all caps. Strong words there! I find shorting the most intellectually rewarding aspect of investing. It helps build conviction like you can't believe. I absolutely have a long bias, but have been short CROX, LULU, OPEN, NFLX, FNGN, CRM, and WDAY over the last seven years. I've learned much more about value and market psychology building these positions than any long positions. I run a very concentrated personal portfolio, so for me shorting is a means to take a position against my longs when I begin to become uncomfortable about the market environment. Not surprisingly, short opportunities become much more abundant in such an environment. Full disclosure, I'm in the red on my shorts over the last six months. However, I have a fairly strong conviction these positions will reap significant rewards over the next 6-12 months, which can then be redeployed into my long positions.