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Tweedy Brown on Investments and Taxes


racemize
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Quote from Buffett:

And once you’ve estimated future cash inflows and outflows, what interest rate do you use to

discount that number back to arrive at a present value? My own feeling is that the long-term

government rate is probably the most appropriate figure for most assets.

 

That would mean a P/E of 36!

 

And when Charlie and I felt subjectively that interest rates were on the low side — we’d

probably be less inclined to be willing to sign up for that long-term government rate. We might

add a point or two just generally. But the logic would drive you to use the long-term

government rate.

 

That would mean a PE of 21... much more realistic.

 

Still, lots of room on the macro side judging from Buffett's simple equation.

 

BeerBaron

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I normally use a discount number that is several basis points above the long-term US Govt bonds.  Recently I've been using 8 or 9, sometimes even higher depending on how risky I think the company is as an investment.

 

What discount rate do board members normally use?

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I normally use a discount number that is several basis points above the long-term US Govt bonds.  Recently I've been using 8 or 9, sometimes even higher depending on how risky I think the company is as an investment.

 

What discount rate do board members normally use?

 

I just leave mine at 10 and adjust the margin of safety to the company.

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