valueseek

There's a change in this interview Todd Finkle probably lied about Buffett telling him using DCF to value businesses. Anyways, for most businesses, DCF is the way transactions are done in the world. They are done on multiples eventually but it is an output from the DCF. Again, it is not to be said that one uses DCF he/she has forgotten to do much of the other things (diligence, knowing the industry, quality of business, management, etc.). Also, one can get a dcf on anything but one of the key metrics tends to be ROC in an operating business. All such metrics can be easily gotten ahead or from the DCF (for eg. ROC - NOPAT+DnA-maint. capex/Net ppnE, accumutaled dep., non-cash int. bearing liabilities). Buffett is on another planet. he has 70-80+ years of experience. Maybe after the first 1-2 decades, one doesn't need any calc. Also, depends on the inv. understanding and philosophy that keeps on evolving over time for most. Starting with a sub 15PE and some growth, all things equal starts off with a 10%+ return - so there are always different methods for everyone. I think having a consistent process is important at least for me yet turning as much rocks possible. DCF can be used to come at the market expectations of most operating businesses. I am in all probability rambling so will stop.

I have used it as a check - more reverse one. To Vinod's point, I remember Buffett pointing several times the value of a security being the discounted cash flows. The minutia of details and assumptions and a standard process are for everyone to get to. With multiples, there is some kind of DCF embedded in anyways. Every situation is different - so there are a variety of industries (eg. banking) and asset situations (real estate), where DCF is not the norm. generally. DCF would just be a tool - imho more in stock analysis is about one's experience, psychological makeup, decision making and pattern recognition.

@xerxes. You are right. Last 20 years, NOC, LMT bought back some 4%, 3% of sh. outst. annually. While RTX increased sh. count by 2%. That explains most of the delta in the annual stock performance bw. NOC/LMT and RTX. Other difference is the margin expansion at NOC has been at a faster rate in the last decade from a lower starting base of margins. Vs. RTX margins are reasonably at the higher end. Anyways, at these levels with a longer time horizon, HSD-LDD kind of total annual returns seem very reasonable - a lot more buybacks than in the past would need to move them higher as sales and margins are not going to be the drivers here.

I recently did the exercise with RTX. Went to the last 20 years, when the stock traded at lowest valuation vs. say past 3-5 year history, the overall stock return to date (obv. impacted by the curr. forward PE multiple as well), was 9-10% per year or so. So not bad but not what I would have guessed. Last 20 years RTX EPS growth has been 7%. So I agree, RTX looks good here for medium long term but harder to get north of 10%+ for longer holds. Just my guess. The UTX deal may have messed up some of the numbers but I tried accounting for it. LHX on the other hand had grown much more than RTX over the years through various acquisitions. Going forward, EPS growth may be higher here. Anyways, looking at 10-20 year PE multiple charts, defense stocks go through bouts of lower and higher PE's. 2018 their PE's went to astronomical levels being compared to cons. staples. - that is how the 23+ times forward PE multiples were being justified. PE multiple collapsed to 11-12 times in 2020 as defesne spending outlook shrunk with Democrats win. 2022 - the Russian Ukraine increased the PE to 18+ times. Since then the PE's have been coming down. The defense businesses are different than core manufacturing businesses as in the margins dont keep on expanding much but the defense businesses generally are quite capital efficient - dont use a ton of capex and govt. subsidizes some of the R&D. Anyways, buying them below 15 times PE has worked out well generally with 8-12% annual returns depending in the time period.

Wow… stopped listening to Bass several years ago… but this is news that he was long Chargepoint… quite hilarious if it is true that he were long this

Starter in $WCC

Put in order to buy starter in $JCI.

I will just mention I met with $ASPN company management a few years ago. My recollection is it was one of the worse meetings where it was very evident doing some work management it fleecing the shareholders with some promise coming on the energy fracking side if I remember correctly. May be the story etc. all have changed, and outlook seems much brighter now. But I still see the same CEO - I for one will be wary. For anyone doing research, it is good to look at what they said and did from 2013 to 2020, what was CF, what was the dream and how much the management got paid and were they even required to be public, etc. Quick glance shows share count increasing from 24M to 70M roughly in the last decade. Hopefully for ppl involved, things are going to be different going forward in terms of prospects they are selling

I agree, while there is definitely some bias from the house, majority of what the analysts do are more individually driven. Plus their modus operandi is to cater to the fast money hedge funds - majority of whose outlook is 3-6 months. Even big long only shops dont want to have a loser in their portfolio for 3-6 months, be it how much long term one says the institution is. If it is not an institution and more boutique shop or a small knit team on the long side, they can still bear 6months 1 year performance going into the stock but it is a very small number of people and not the ones primarily whom majority of the sell side analysts cater to.

From an ROE perspective, SPSM/VIOO are in the 10-12% range, ND/EBITDA in 2+ times. SP500 dominated by the tech. titans has ROE around 20%+ and ND/EBITDA around 1-1.5. SP500 margins are much higher than small caps where one can argue they come down over time. Not arguing against the PE multiple difference bw. SP and small cap but just throwing some underlying stats.

Thanks @longterminvestor, @Dudley and @dealraker. Attaching the initiation from a couple years ago. Without taking into account the end opinion, the report is reasonably good in terms of industry analysis and background - one of the more diligent analysts on the insurance side. Ryan Specialty Group __ Multiple Levers for Outsized Growth, but Valuation Appears Full; Initiating with Neutral Rating.pdf

Thanks @Liberty for pointing this out. I pre-ordered it as well and started reading. Have still to go through fully. Quite good thus far.

Did not want to create another thread. But $Yell goong bankrupt, most probably chapter 7 liquidation, the stock traded 4+ times its total outstanding shares today. Yesterday trading was crazy as well. Most ltl chapter 7s dont get much. They have some 300 terminals, out of which some 170 are owned and rest leased. Of the owned guess is max half would be above 70-80 doors or worth significant to strategic sellers. Tractors and trailers age is up there as well. Reports that MFN partners buying the stock but dont know about their debt holdings here. Havent done any more work but found v interesting.

Thanks much @longterminvestor. Just great color and insights!

Hi @Parsad I second the comments and sentiments of many on this forum. I have followed many a different forums, channels, research services, etc. in the past decade. This has been one of the best in terms of overall life and investment related learnings. So thanks for that and to the excellent posters here willing to share their thoughts and experiences. Thanks.

Thanks so much @longterminvestorfor your invaluable insights. Worth their weight in gold! Have been reading about them most of yesterday and today. Had a few questions on Ryan - not urgent at all. Wrt wholesale brokerage business, my understanding is that the retail brokers still primarily own the client relationship. If this is true, then can the Aon, mmc, etc. threaten Ryan, amwin or Crc to move business away from them and/or continue to keep more of the commission for themselves? In other words are retail brokers more robust a business and could they squeeze margins from wholesalers over time or the technical knowhow wholesalers present doesnt allow the retail brokers to do that? I guess wholesalers would have pricing power or much value creation for the sub $10m rev. retail brokers? How easy is it for large producers on the wholesale channel to go out on their own and start their own shop? In other words is it more difficult at wholesalers to do that vs at retail brokers because end clients for the producers at wholesalers will have to be the retail brokers? From a producer perspective, is working at a wholesale broker a tougher job or higher paying job than retail or both are similar and does not matter? Seems to me wholesale brokerage might be a better higher paying gig with higher inherent growth as well. In Ryan’s slide regarding the growth algorithm, any comments 1 growing from panel consolidation. How big of a tailwind is this given the market seems already quite consolidated with the top 3? 2 e&s market continuing to grow 4-6% above admitted market growth rate. This has been happening for the last decade to the tune of 500bps or so but of late there seem to be at least in some conference calls discussed that this trend may reduce. Any thoughts for next few years on this? 3 how much contribution from MnA in this wholesale brokerage space one should assume given top 3 are 70%+ of the market already (and only wholesalers vs 1000s of retail brokers (mmc, aon, etc.) that are much less concentrated in top 3 at around 25% or so. Or would it be that they could be acquiring on the retail side as well? 4 Which between the mga/mgu part of the business and the binding authority part of the business is the more attractive from a growth and industry structure/tailwinds perspective? Thanks

Great discussion here. Thanks @longterminvestor for some invaluable insights. Does anyone here have any insights on $RYAN- what Pat Ryan is building? Also, this is not a broker - $KNSL, so disregard if not appropriate for this thread but $KNSL is an E&S insurance player. They have just kept on delivering since their IPO in 2016 or so. It was brought to the market by JPM. Mike Kehoe, CEO and founder used to do the same at a previous company before founding Kinsale in 2009 with some PE backing if I remember vaguely. I had the good fortune of meeting him for an hour back in 2019 and was quite impressed by the meeting as my recollection is he primarily talking a much different tone than a typical ceo - about wealth building, partnering, controlling risk and the opportunity for them. But due to valuation and primarily my lack of understanding of the space, did not do much. Since listing some 7-8 years ago, EPS is up 10x and stock is up 20x. It has mostly traded at 25+ PE multiple and 5+ times PB (or 8 times curr.). It will be great, if anyone has anyone has comments/insights about any of these two businesses $RYAN/$KNSL. Tks.

Bought some Sesa spa. Some tixt.

@Spekulatius Thanks for the gurufocus tool. Nice quick one as a check.

This is a great post. Thanks for concise and thoughtful explanation.

This is how i hsve thought sbout it as well. It should be reduced from ocf for employee cost. And characterised in financing cf as it is more of a financing transaction.

interesting and thoughtful take Spek

Have been following Sauls forum for last few years as well. Believed it should be termed - Sauls concentrated growth trading forum. With the cult following, they had a great run 5 years prior to 2021. He has never really revealed how much money he has invested in the retirement accounts he quotes. And Enphase is really a shocker for the SAAS drumbeat for last several years.

This is a good one. Have followed him last 7-8 years. Has some good books. He is generally bullish but also quite practical in the way he has been vary about avoiding the corrupt companies.

Tks for some excellent posts. Esp. The art of writing vs investing long term