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Longleaf Q2 2009 letter


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(letter only, full report isn't posted yet)



We use the depressed 2009 numbers as the base for going forward rather than assuming

normalized levels of cash flow from an average of the last several years. A stock’s price

must be significantly discounted from what current business levels justify for us to buy.

We have greater confidence in our appraisals because in addition to using conservative

assumptions, some macroeconomic tailwinds could make our valuations too

low. Credit remains tight, but its wider availability should help increase business

activity. Stimulus spending across the world is in early stages and should show more

impact going forward. Production levels dropped significantly more than GDP

declined, thereby depleting inventories over the last six months. Industrial production

will rise above current rates without demand growth.


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