Buffett doesn't really use DCF, at least according to the sources I've seen. He uses something more akin to a hurdle rate. It is easier and more intuitive and I'm frankly baffled that people use DCF*.
Company A is worth $100 and is trading at $50, tells me very little.
Company B is expected to return 15% per year, tells me a lot.
Example A, I guess, makes sense for cigar butt traders. You need a buy target and a sell target. Or if you are doing a private deal where the price is negotiated.
* Building a detailed model and seeing how different assumptions impact valuation is a fun and valuable experience, but I'm doubtful it will improve most peoples returns.
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I'm assuming the biographer you were referring to was Alice. Here is how she describes his process:
He looked at them in great detail like a horse handicapper would studying the races and then he said to himself, ―I want a 15% return on $2 million of sales and said, Yes, I can get that.‖ Then he came in as an investor.
OK, what he did was he incorporated his whole earnings model and compounding (discounted cash flow or DCF) into that one sentence. He wanted 15% on $2 million of sales (a doubling from $1 million current sales). Why does he choose 15%? Warren is not greedy, he always wants 15% day one return on investment, and then it compounds from there. That is all he has ever wanted and he is happy with that. ...You are not laughing, what‘s wrong? (Laughs)
It is a very simple thing, nothing fancy about it. And that is another important lesson because he is a very simple guy. He doesn‘t do any DCF models or any thing like that. He has said for decades, ―I want a 15% day one return on my capital and I want it to grow from there-ta da!