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  • batbeer2 commented on Adam Brownlee's article 10 hr ago
    Determining the Best Growth Rates for a Discounted Cash Flow Model
    Warren Buffett (Trades, Portfolio) once likened valuation to Aesop’s fable, “a bird in the hand is worth two in the bush.” The trick though, he...
    View all 3 comments
    batbeer2 09-24 14:18
    • >> Deep net-nets might point to deep value but perhaps miss the strategy of quality companies at good to great prices.

      IMHO there is no such thing as a strategy of buying quality companies at good to great prices. Yes, some market participants do that, but it is not a strategy. There is only one strategy and it boils down to acquiring future excess cash flow at the lowest possible price.

      Many investors spend a significant amount of time figuring out the proper discount rate for stocks that are universally perceived to be safe (KO, PG, JNJ....).

      The day a stock is perceived to be not perfectly safe is the day:

      1) You don't need a spreadheet to prove it is cheap (AXP) and

      2) People call into question the quaitative aspects of the business.

      So now you're left with a choice.

      Either you spend a lot of time figuring out exactly what drives this business (the qualitative aspects) and finding out if and where the consensus is wrong or you stick with your model and apply that exclusively to a universe that is perceived to be perfecly safe.

      It is fair to say the latter option is mentally and emotionally less challenging. The aforementioned choice is exactly where investors who deserve excess returns and investors who want to believe the stock market is a place where you can find easy money part ways.

      Just some thoughts.


Yesterday

  • batbeer2 commented on Adam Brownlee's article 19 hr ago
    Determining the Best Growth Rates for a Discounted Cash Flow Model
    Warren Buffett (Trades, Portfolio) once likened valuation to Aesop’s fable, “a bird in the hand is worth two in the bush.” The trick though, he...
    View all 1 comment
    batbeer2 09-24 05:21
    • Hi Adam, thanks for you sharing your thoughts.

      You say:

      >> Although it is still necessary to navigate the waters of cash flows and discount rates to devise a useful discounted cash flow model, this growth rate method puts us well on our way to figuring out how many birds are in the bush.

      I say:

      If you need to do a DCF, it is not cheap enough.

2016-09-13

  • batbeer2 commented on Rupert Hargreaves's article 09-13 13:37
    Offshore Drillers: Beware the Value Trap
    Times are hard for value investors. The bull market that has been in place since the financial crisis is the second longest-running bull market in...
    View all 6 comments
    batbeer2 09-13 14:37
    • >> Most of these companies have a huge amount of debt to maintain

      Yes. So maybe you take a look at the bonds?

      Or you look at those that have better balance sheets?

      Or you look at the companies that have been building rigs that are now reporting losses but you figure maybe they can use their docks to start scrapping rigs?

      Or....
  • batbeer2 commented on Rupert Hargreaves's article 09-13 13:02
    Offshore Drillers: Beware the Value Trap
    Times are hard for value investors. The bull market that has been in place since the financial crisis is the second longest-running bull market in...
    View all 4 comments
    batbeer2 09-13 14:02
    • >> Therefore, if it is impossible to calculate a per-share intrinsic value, it is impossible to buy with an appropriate margin of safety.

      OK. In the spirit of Georg Ferdinand Ludwig Philipp Cantor let's approach this problem in reverse. 

      A typical jackup rig weighs about 10 000 tons. Scrap steel in the US is worth at least $200 per ton and I assume these rigs have a significant amount of high-quality steel in/on them.

      So if you can buy these rigs at $10m apiece I think you have a decent margin of safety.   
  • batbeer2 commented on Rupert Hargreaves's article 09-13 11:36
    Offshore Drillers: Beware the Value Trap
    Times are hard for value investors. The bull market that has been in place since the financial crisis is the second longest-running bull market in...
    View all 3 comments
    batbeer2 09-13 12:36
    •  It's a difficult market to assess.

      Yes.

      FWIW I think the shallow end of the market is very interesting at the moment. I oversimplify but one dynamic I see is that the deep water rigs have moved closer to the shore. They push the less versatile/advanced jack-up rigs out of business. They become scrap. 

      BUT

      There are not many high-end deep water rigs. If ever there is a small uptick in the demand for these advanced high-end rigs, they immediately move out again. They are the only ones that can do it.

      THEN

      You get a huge gap because so many "simpler" rigs have been scrapped. The guy who has accumlated a lot of so-so rigs at scrap prices makes off like a bandit. 

       I'm just observing at the moment but this is one dynamic that I think is of relevance to say... DO.

2012-04-22

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