Posted by 3iii > 2016-03-29 07:31 | Report Abuse

Buffett wrote that the intrinsic value of an asset is the discounted value of all its future cash flow. Charlie Munger turned to Buffett, "I have never seen you do these calculations before." What can we learn from these 2 sentences?

Posted by 3iii > 2016-03-29 07:34 | Report Abuse

Buffett also wrote that it is better to be approximately right than to be absolutely wrong. Benjamin Graham wrote you don't need a weighing scale to tell that this person is fat. What can we firther infer from these statements?

Posted by 3iii > 2016-03-29 07:35 | Report Abuse

..further infer

Posted by 3iii > 2016-03-29 07:44 |

Post removed.Why?

Posted by 3iii > 2016-03-29 07:52 |

Post removed.Why?

Posted by 3iii > 2016-03-29 08:02 | Report Abuse

It is better to buy a wonderful company at fair price than a fair company at wonderful price. Quoting Buffett.

Qualitative margin of safety first, then look at Quantitative margin of safety.

A wonderful company is a bad investment if you overpay to own it.

A fair company available at wonderful discount can be a good investment.

Gruesome companies are better avoided.

Posted by 3iii > 2016-03-29 08:06 | Report Abuse

Essentially, select the best company in the sector or industry. Be disciplined and be patient. When the opportunity presents, have the cash and the courage to buy big. Hold for the long term.

Posted by fung9815 > 2016-03-29 11:05 | Report Abuse

Hi Stocksbaby, great effort! Keep it up.

Few comments from me:
1) I presume your 10 rules of thumb for growth companies are entirely based on historical facts rather than estimation of future. Warren once wrote in his classic GEICO article that "the investor of today does not profit from yesterday's growth". This simple sentence has forever shaped my thinking in investment.

You set a pretty high bar of >15% CAGR and I guess you must be hoping the growth to continue in most cases. That can be backfired. Sometimes historical numbers don't tell everything, if not Kodak & Nokia wouldn't have gone down (they had their >15%-growth days). Understanding the business is SUPER crucial.

2) On your discounted EPS model, using a discount rate of ONLY at risk-free rate is, at least to me, too aggressive/optimistic. Your intrinsic value on any company will likely be very high. I normally discount back at 10% because the stock market delivered 10% return a year (including dividends) in the past, so my valuation is tend to be lower, more conservative and sensible.

3) I think your discounted EPS model is wrong. You only discounted 10-year earnings without a terminal value, you should have one.

Intrinsic value = [sum of 10-year discounted earnings] + [(EPS of 10th yr) x (1+{LT growth rate}) / (r - LT growth rate)]

Anyway, the terminal value calculation is widely available online. You can google them.

4) Actually, valuation can be made simple. Like 3iii said "Benjamin Graham wrote you don't need a weighing scale to tell that this person is fat." This Ban Graham quote also inspired me a lot in valuing companies. There shouldn't be any precise intrinsic value on companies, we should always value them in range.

Posted by 3iii > 2016-03-29 17:06 | Report Abuse

The aims of fundamental analysis of a company are to determine its intrinsic value and the FUTURE growth of its business. There is always an element of subectivity in their determination.

Posted by stocksbaby > 2016-03-29 20:19 | Report Abuse

Thanks all superior for the valuable information.. will take note it.