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Global Treasure Hunter: David Winters

February 06, 2008

A great interview of David Winters by Columbia Business School 's investment newsletter, "Graham and Doddsville." Q: You’ve described yourself as being on a global treasure hunt. What’s the checklist of characteristics that a situation has to have before you invest?

DW: I don’t know if there’s an exact checklist. There’s no magic formula because every situation is a little different. But if you’re talking about what my ideal investment is, first of all I want a good underlying business.

A business that is, hopefully, getting better over time, so time is your friend. Then I really need to have management who are committed to doing the right thing, who I sometimes describe as being in the boat pulling the oars in the same direction as the rest of the shareholders. I think you want to have both those factors plus an undervalued security price.

When you have those 3 things, then you have a trifecta. And you want a trifecta.

About DCF:

I probably inherited Michael (Price)’s skepticism for DCF. I think of DCF as garbage-in, garbage-out. Conceptually it’s right, but the ability of anybody to make accurate estimates is low. During the many years I worked for him, one of the lessons I learned from Michael was not to be so dependent on earnings. Wall Street is so obsessed with, “Did they beat by a penny? Did they miss by a penny?” If you’re investing in securities that are so contingent on that, the possibility increases that you’re going to get beat. Our approach is to try to buy today at a discount and get tomorrow for free. Somebody showed me a DCF model last week and I looked at it and I was pretty skeptical. They had a terminal growth rate of 2%, and I asked, “What happens if it becomes 5%?” The value went up by 100%. 

Read the complete interview


Rating: 3.1/5 (15 votes)

Comments

kfh227
Kfh227 premium member - 6 years ago
From my use o DCF, I've noticed that years 11-20 are fairly meaningless. Once a discount rate is figured in, the difference between 2% and 5% is maybe a change of 5% in IV, not 100%. I honestly think the person that did the DCF that was mentioned did it wrong. That, or the company was a very odd one.

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