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It does not make sense to value companies with significant operating lease expenses using EBITDAR because by doing so, you are pretending that the cost of the leased item that directly contributes to the operating results of the entity (and is unavoidable) doesn't exist. For example, without their mall-based operating leases, stores like American Eagle wouldn't have the sales they have. So you can't ignore that cost anymore than you can ignore other costs essential to the sale, such as the cost of the actual clothes. And to Andy's point about the measure being used to compare two entities with significant rent expenses, I would say that also doesn't make sense for the exact same reason above and also because by doing so you may be ignoring a benefit that one entity has over the other in the form of better lease terms. Two entities, both of which have significant rent expenses, will be worth totally different amounts to their owners if one has better average lease rates (with all other factors, such as sales, cogs, etc., being equal). In my experience, it is usually companies with poor underlying economics that hope investors will pay more attention to measures such as "profits before expenses" than to the real bottom line including all expenses.

My short answer would be: no different that you value any other business. What are free cash flows the business will be able to generate to maintain or grow itself, to the extent growth opportunities exist. By looking at free cash flow, you'll already be taking the degree of capital intensiveness into account. And how do these cash flows compare to invested capital including debt and equity.

My two thoughts: 1. Why buy company A at a premium when another likely exists with similar prospects but a better price relative to intrinsic value. 2. The longer I've been an investor the more I've come to realize that you'll likely get another bite at the apple you desire. Prices go up and down all of the time. Pick 10 random companies and look at their 52 week highs and lows for each of the last few years. Chances are that for almost every one of them there will be a 50 to 100% difference from their annual low to their annual high year after year. Intrinsic value obviously doesn't fluctuate that much, but yet the prices do. Year after year. That may not have been the case for Berkshire, but it is for many others. Take advantage of those situations when they exist for good quality businesses.

Valuechaser - the deal you mentioned is stock for stock. so even if the deal closes, there is no guarantee you'll end up with more value than what you paid for your shares of the acquiree.

When I went a few years ago, there were two lines to get into the arena. One was near the convention hall (exhibit hall) portion of the arena and close to the parking lot and the second was an entrance directly into the arena at the intersection of Capitol Ave and N. 10th Street. Oddly, the line by the convention hall had 10 times as many people even though it was further from the arena floor. I'm assuming this was because people parked in the giant parking lot, saw the first line and got in it. You don't have to park in the parking lot and there is plenty of free parking on the street right by the arena. Park on Capitol Ave a block or so away and get in that line. You'll beat 90% of the folks into the arena and get a much better seat. Also, you don't need to arrive so early if you get in this line. I arrived about 40 minutes before the doors opened and there were only a couple hundred people there at the time (in this shorter line). Run in, put your coat over a chair and head down to the convention hall to check out the vendors and see Buffett up close. He walks through there shortly after the doors open. You probably won't be able to get too close, as he is mobbed with reporters and security folks, but you can see him from 10 to 20 feet. Fun times. Hope this isn't too late to help.

Seems to me that Pat, the sales manager, should buy this.

matjone said: "I am thinking about purchasing a house and am trying to decide whether to borrow or pay cash. Paying cash would probably cut my investment capital in half, but it would probably cut my heart rate a few BPM too." Like deciding which supermodel to date, this is the kind of dilemma that many folks would love to be faced with. So first off, congratulations on your financial position! With today's low rates, the textbook answer is to maximize your mortgage to the extent of not paying PMI. That said, there is a lot to be said for peace of mind and it sounds from your post that you really value security and peace of mind. Therefore, I'd suggest considering one of the following options: 1. Pay cash for the house and secure a home equity line for 50 percent of the value of the house. Don't draw on it, just have it available. Then use it when you run across that once in a few years homerun investment opportunity. This strategy might also help prevent the temptation of keeping all investment capital deployed in stocks at all times (for those who have a hard time sitting in cash). or 2. Get a mortgage for 50 percent of the value of the house and put 50 percent down. This way, you'll still be able to keep three-fourths of your capital working for you in the stock market and even though you will have a mortgage obligation, the monthly payment will be small enough that it will be very easy to manage under most likely scenarios.

Loeb and Third Point increase their stake to 9% and write the following letter to Sotheby's asking for board seats and for the CEO to resign: http://www.sec.gov/Archives/edgar/data/823094/000119312513388165/d605390dex993.htm Here are a few excerpts: "Your personal holding of 152,683 shares, representing a mere 0.22% interest, is particularly noteworthy because you have been an employee of the Company since 1980 and its CEO since 2000. In sharp contrast to your limited stock holdings is a generous package of cash pay, perquisites, and other compensation. We see little evidence justifying your 2012 total compensation of $6,300,399 in both salary and PSU awards valued at over $4 million, seemingly based on a mysterious target not disclosed in any of the Company’s public filings. Your compensation award compares quite favorably to companies offered as peers in your own proxy statement: $3.9 million for the CEO of Nordstrom Inc. and $6.1 million for the CEO of Tiffany & Co. – both companies more than three times the size of Sotheby’s – and yet Sotheby’s has clearly underperformed these “comparables”." "In the course of our investigation into the Company’s business practices, we came across numerous anecdotes of waste. Typical of the egregious examples was a story we heard of a recent offsite meeting consisting of an extravagant lunch and dinner at a famous “farm-to-table” New York area restaurant where Sotheby’s senior management feasted on organic delicacies and imbibed vintage wines at a cost to shareholders of multiple hundreds of thousands of dollars. We acknowledge that Sotheby’s is a luxury brand, but there appears to be some confusion – this does not entitle senior management to live a life of luxury at the expense of shareholders." "once on the Board, it will be our top priority to commence a search for a new Chief Executive Officer from either within or outside the Company. Based on our due diligence and discussions with participants in the art market, there are at least two internal candidates for the CEO position who warrant serious consideration. We have already begun informal discussions with outside candidates and would welcome the opportunity to bring the internal candidates into a formal process."

I get the retail report from my nieces every few months. Kraven, same general area as you. My youngest niece is a few years older than your babysitter. She's 16. Her latest 'report' was that Urban Outfitters was her favorite, that American Eagle is pretty good, that Abercrombie and Fitch is just ok (as well as Hollister), and that Aeropostale was the place that kids tease other kids about. I did also recently ask her about Vera Bradley as I've been watching it (but standing on the sidelines because of the bulge in inventory that management expects over the next few months). She said Vera was more popular with a slightly younger age group (probably middle schoolers).

I don't think it makes a difference when you pay the tax. Let's assume $100 of income to be invested, a one year holding period, a 10% annual rate of return, and a 20% tax rate. Pay $20 of tax up front and you invest $80, earn $8 of return, and end up with $88. Pay tax at the end and you invest $100, earn $10, pay tax of $22, and end up with $88. I think the same applies to a multiple year scenario. So only the tax rate matters. Is the upfront rate more or less than the back end rate. That's the gamble.

Thanks to everyone for your recommendations. We just got home from our trip to Niagara Falls and Toronto. In Toronto, we spent an afternoon at Centre Island, had dinner in the Distillery District, went to China Town and Kensington Market, spent some time around Dundas Square, and had a very nice dinner at the 360 Restaurant in the CN Tower. Thanks again for all of the suggestions!

Thanks so much for all of the suggesstions so far. Very much appreciated. Any particular area of the city I should try to stay in or avoid?

My family and I are taking a road trip from our hometown in Washington, D.C. to Niagra Falls and then on to Toronto for a couple of days. I was hoping to get the insights of the many Canadians here on where to stay and what to do in Toronto. I've never been there and so I don't have any idea about what part of town to stay in (or what part to avoid, if any) or what might be fun for a family with three kids under age 10 (things to do, places to eat, a great hotel to stay at, etc.). Any help would be appreciated. Thanks.

As a long time Morningstar subscriber, I've been wondering the same thing recently. Why? Because during the market collapse in 2008/2009, Morningstar lost confidence in it's "consider buying at" and "consider selling at" prices (presumably because stock prices dropped significantly below any reasonable "consider buying at" levels) and, as a result, widened the range around their FV estimates so broadly as to become practically useless. A current example is illustrative of this. Apple has a FV estimate of $600, a consider buying price of $360, and a consider selling price of $900. The spread between the buying and selling amounts is so wide that it basically screams "we're not very confident in our FV estimate." Now I know just as well as anyone that intrinsic value isn't a precise number, but when they widen the range like this, it makes my question the value and reliability of their numbers. Apple is supposedly worth only $600, but I shouldn't even consider selling it unless it goes over $900? How should one make sense of this? That said, Morningstar still does a great job at providing insights into the nature of company's businesses including their competitive positions. They also focus on the fundamentals of the business (not just "we expect $0.xx cents of earnings next quarter, therefore our price target is $XX that is common in other analyst reports).

In the last few weeks, I've been thinking about taking some money off the table. But so far, it's only thinking and not doing. On the one hand I think to myself that certain equities have run up a lot in a short amount of time and that they are approaching close to full valuation. For me, this would mean I should sell regardless of general market conditions. On the other hand, I think to myself that we aren't anywhere near the point where the average man on the street has started to think they have go all-in on stocks because they don't want to miss out on potential gains. I guess I'm wondering whether we value-minded folks are right but early in thinking about lightening up.

Infinitee, I agree too. She should have known she was asking lousy questions just by thinking about how she prefaced them. For example, "I know you don't pay any attention to the weekly jobs report, but tell me what are your thoughts on the weekly jobs report." She was wasting his time.

One of the best things about this board is how little it has changed over these many years. Smart members, high quality thinking, helpful posts. The biggest change I think I've seen since the old MSN board is that many people now refer to Sanjeev as Parsad. Here's to another 11 years!!

Watching Warren on CNBC today (talking about the Heinz deal), the CNBC anchors brought up the NYSE deal. Warren said that, contrary to what was previously reported, he never spoke with anyone about buying the NYSE and that he wouldn't have had any interest in doing so even if someone had approached him about it.

At first I thought he was a teenager when he stole the money and I thought that while that was pretty bad, teenagers do make some pretty dumb decisions. But if I'm understanding this right, he actually stole the money when he was in his late 20's. Is that correct? If so, I can't see anybody rationally intrusting him with their hard earned money after knowing about this. Seriously, what excuse is there to steal $4,000 from your employer? Does anyone have a link to court docs or his plea deal?

Icahn sounded like an incoherent, rambling Donald Trump.

One of the most logical sell methodologies I've seen comes from Bill Nygren of Oakmark. See the 18th page of this PDF (marked as page 16 at the top) and read the section labeled "The Sell Criteria." http://www.oakmark.com/news_upload_files/KaysChpRpt_WCN_pdf4web_09-1231u.pdf

itsavaluetrap said: "I think you're missing the point? He's simply saying that most companies won't survive over the long run." No, as I said in reply to rimm_never_sleeps, "Taleb made it clear when making this remark that he had observed something about one of the three companies and, based on this, he was confident that this particular company would go the way of the dinosaur." beerbaron said: "Honestly, who cares which one Taleb thinks it is...Forecasting the death of one of those 3 companies in 10 years is ludicrous...knowing which one of the three is impossible with the current available information." Taleb may be right, he may be wrong. Who knows? But he's certainly no run of the mill thinker. And for that reason alone, it may be worth thinking about given the size of each of these three companies and their meaningfulness to the stock markets and to their industries. If the #1 rule of investing is to not lose money, then thinking about whether companies may go extinct is a useful exercise. I have no investment in any of the three, but I do find this an interesting subject to ponder given that most lay people would think it unfathomable that any of the three will face demise from their current standing.

rimm never sleeps said: "he doesn't know which one. in all likelihood he's simply doing a simple statistical analysis." Taleb made it clear when making this remark that he had observed something about one of the three companies and, based on this, he was confident that this particular company would go the way of the dinosaur. valueinv said: "Technology has laid waste to search engines too: Alta Vista, Yahoo" That is for sure. The list is quite long: Lycos, Webcrawler, Excite, Askjeeves, etc. The only difference between the search engine examples and the tech devices example is that none of these search engines were ever the category killer. Google clearly is now, so maybe they are at risk. But in tech devices, there has often been a company that makes the "must have" item. In the 80's, people wouldn't consider owning a personal tape player if it wasn't a Walkman. With PDA's, you had to have the Palm Pilot. Today, people line up for days to buy an iphone. My gut tells me that we'll look back at this and laugh.

I recently attended a talk given by Nassim Nicholas Taleb (Black Swan) in support of his new book, "Antifragile: Things that gain from Disorder." During the talk, he mentioned - almost as an aside - that he strongly believes that one of the above named companies is not going to survive in the long term (but wouldn't say which one). Any thoughts on this? If I were to guess, I'd say Apple because technology has a clear history of laying waste to former device kings. Think Sony Walkman, Palm Pilot, etc.

Davita being accused of a massive overbilling fraud... http://www.cnn.com/2012/11/30/health/medicare-fraud-case/index.html?hpt=hp_t3