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  • ry.zamora 2012-08-10 14:07
    Bill Smith: Ry:  I've seen growth estimates of 8%, 13%, and 14% (Morningstar, S&P, and Yahoo, respectively).  So there's some difference of opinion out there.
    Ry:  I've seen growth estimates of 8%, 13%, and 14% (Morningstar, S&P, and Yahoo, respectively).  So there's some difference of opinion out there. The DCF #s I listed weren't intended as a replacement for any deep level of analysis wrt shipments and the like, just a "what if" to see where fair value might land given the opinions out there.  As far as talking to IR, I follow the "haircut" rule--never ask a barber if you need a haircut :D  

    But, I'll be working on a DLB article soon.  Thanks for "waking me up."  I just have to figure out which angle to take with it.  It seems DLB has a lot of haters out there beyond this short-term quarterly miss.  Their sentiment seems rooted in the the point of view that DLB is dead b/c of the cloud.  However, I disagree with a draconian position like that.  Anyway, I'm muddling through that thought process right now.

    Oh, almost forgot--I do have a LinkedIn acct, but really haven't used it.
    True, there is a difference of opinion. However, the discount rate is also your risk rating and should therefore reflect your assessment of DLB's business risk and the minimum return that'll make you pay for it at the expense of other forgone opportunities, not necessarily the growth rate.

    It doesn't act as a replacement, yes, but the higher discount rate acts as a buffer. An arbitrary one at that.

    LOL. The "haircut" rule. Because of the bias? The way to approach investor relations is to ask questions AFTER you're done appraising the company and right before moving on to valuation. The hard questions that can't be simply written off/downplayed by whoever you talk to. XD

    Okie, well, I'm just doing my due diligence here as it's been almost a year since I bought the stock. Can't understand how DLB is dead "because of the cloud". Cloud = online storage. Dolby = primarily sound quality and codecs. Codecs can't really die out fully considering the users (or the cloud admins) must still rely on something to make their stored items readable.

    I see. It's a shame though. Then again, I'm not as active myself—I spend many of my waking hours reading on Europe.
  • ry.zamora 2012-08-08 09:10
    Bill Smith: Ry:  I can't figure it out either.  Maybe people are concerned about patent expiration, PC sales, etc?  I remember reducing consensus growth estimates
    Re: First reply:

    I see. I've seen Jae Jun's spreadsheets before, though I still prefer to construct the valuation models myself, as I estimate owner earnings line by line, going down from revenues, which are tied to non-financial information if I can help it. It's a super long and super intense analysis, but it gets the job done with applicability of one to two years barring any significant changes in the fundaments.

    Your philosophy is sound. Hehe, definitely consistent with the ideology GuruFocus itself embodies. ^^

    Re: second reply:

    Google's events list blames it on lower 3Q earnings, and a check on the articles show it's due to lower revenues (probably thanks to the "products" segment, since the 2011 FS hints on it). Something I won't particularly care about unless it materially affects the entire FY and thereafter.

    Now, why use 9%? That's almost exactly what the market rate is (according to Damodaran's ERP estimates + the US Treasury yields on 7Y or 10Y bonds). Like many GF peeps, I prefer 12% for a quick and arbitrary discount rate since it's conservative enough (esp. when it's like slapping a 1.33 beta on the stock) for blanket usage.

    The 12% beta would even be more justified than 9% because Dolby Labs is somewhat opaque when it comes to their operating data (but transparent enough for some in-depth analysis), but you don't seem to have done the due diligence in global TV/set-top box shipments, global PC/mobile shipments, and proliferation of digital cinema worldwide (which could be correlated with their services segment). Furthermore, you could've asked investor relations on how the patent expirations could affect Dolby Digital (although I think they're likely to give you either a favorable or neutral answer, and it probably would be a correct one too as Dolby is itself a standard and patent expiration cannot fully destroy Dolby because of the expertise needed to implement them and so long as DLB plows heavy R&D into its business)

    And yes, you should get off your tail. Then again, you can just edit your post.

  • Bill Smith 2012-08-07 18:57
    No problem, Ry, thanks for the kind words.  I intend to start looking for more now that I have a little bit of time back in my schedule.

    For valuation I use Jae Jun's spreadsheets from oldschoolvalue.com  It saves me a lot of time since it pulls the data into the spreadsheet.  It makes it simple to do a reverse DCF, or other 'what ifs' to see what the market price is telling you.  Of course, I also use it for standard DCF models. It also has Graham, Net-Net, and EPV models.  Check it out if you haven't before.  The graphics on my cut-n-paste from the spreadsheet didn't turn out like I was expecting, so I didn't include a table of the owner earnings estimates the DCF is based on--maybe next time I'll use Scribd and link to it instead.

    As far as my philosophy, I like to find consistent, well-run operating companies (large or small) and buy them when they make sense.  Every once in a while I'll "speculate" with a net-net :D  I'll do a deep-dive once at the end of a full fiscal year and compare my estimates of owner earnings with what actually happened to see if I need to adjust growth rates up or down in the model (I tend to err on the low side with growth estimates BTW).  During the fiscal year, I'll keep tabs on the news to look for signs undergirding my thesis, and I may do an interim valuation update.  In DLB's case, the migration of their technology into mobile phones and streaming platforms, and digital TV rollout.  I also saw that DTSI is buying SRSL.  And DLB has enough cash to buy DTSI if they felt like it :)

    And I just realized I didn't send this this morning like I wanted, and I'll get to your other response right after I eat :-)

  • ry.zamora 2012-08-07 16:38
    Bill Smith: Ry:  Thx for the note.  It's been pretty hectic around here the last few months; haven't written as much as I'd like.  The single day price drop remin
    Hey Bill!

    Thanks for your reply.

    Well, I haven't written as much as I'd like either. I've already got a backlog of two companies for my write-ups (DO and Tilson's "beloved" IRDM hehe), and I'm currently making headway with my third company after Hillenbrand (the idea itself inspired by a GuruFocus analysis I found too shallow to act upon). It's just... it's so much more FUN analyzing companies and reading about the macroeconomy.

    I'm pissed off at the market though. Google says DLB has a 0.9 beta, and that means susceptibility to market emotions. Unfortunately, the ECB's all about placating the markets, making our more emotional co-players expect magic to happen and all the problems go away. They still haven't budged from the position the Euro crisis is rooted in economic causes rather than existential problems, and unless I see headway in actual and orderly implementation of fiscal AND political integration, I'm bearish. (Draghi's comments doesn't count since it's just a "suggestion" rather than outright commitment.) That's what I think caused DLB to fall, since I don't recall seeing anything fundamentally bad about it between your Sep 2011 report and Aug 2012.

    Unfortunately, I failed to add to my DLB position when it dipped beneath the $32 EPV estimate since my... primary financier had no disposable cash at the moment and I've already committed my remaining 7% cash into Iridium (now that its portfolio value has fallen 20% from my $8.4 cost). But whatever. At the rate Europe is going, it'll be a matter of time...

    BTW, I checked out the 2011 AR of DLB last night. I honestly don't see anything that outright challenges your investment thesis (might have to scour Google to identify potential setbacks, if they even exist). I daresay it was sustained given that financial results for the year 2011 were astounding. And Bill, I don't really care about quarterly updates, not unless it contains something that deals with long-term value, the 10Q's/8K's possess KPI's that don't exist in the 10-K's/AR's, OR I'm trying to make money through DLB's options.

    My investment philosophy has ALWAYS emphasized the yearly overview and dictates ONLY annual or biannual valuation/competitive advantage updates of covered businesses, along with constant, almost obsessive coverage of global events. :P

    Anyway, I just want to ask you the following:
    (1) What's your current discount rate for DLB, versus what it was before?
    (2) What's the EPV now?
    (3) What's the DCF range now, based on the scenario matrix? And what exactly's the middle range?

    That's it. :D

    Ry Zamora

    PS: Got a LinkedIn account?
  • ry.zamora 2012-08-06 13:44
    Bill, I followed your buy recommendation on Dolby Labs. It's been roughly a year since your Sep 2011 article, and DLB's most recent financial status is out.

    Because you're the analyst-investor who posted the write-up, consequently you are the best person to approach regarding any updates on the company and its intrinsic value estimates. I'll be going into Dolby's 2011 AR later tonight to verify the continued existence of the competitive advantages you listed in your report, but as far as the operating performance, financial results, and valuation updates are concerned I am wondering if you have anything to say about them now that a year has passed and they're down to $31 again. :D

    Ry Zamora
  • JUDS1234567 2012-04-06 16:21
    I was very impressed with the two recent articles you had written “Dollar Cost averaging with a Brain” and “Dollar-Cost Averaging with a Brain: One Year Later”. I would also like to implement this approach. I have read both articles (as well as the comments) and I still have a few questions. I hope you can clear some of these concerns. First at what yield or point do you consider the bond funds over valued or unattractive( in one of the articles you mentioned you did not like using bond fund since they declined in value due to  mass redemptions) so when do you consider bond funds(5% and  above maybe). I imagine you stuck to cash/short term instruments if yields are unattractive. Historically interest rates have been high enough to justify a bond fund/10 year treasuries. Secondly, at what frequency do you “reallocate” your stock/bond/cash mix? I would prefer to do this quarterly, but based on your article it seems to happen more frequently. And lastly, you did post a link to high corporate bond rates, is “average redemption yield” the rate I can expect? would an acceptable alternative to selling bond/stock be instead to add more money from our monthly 401k contributions?

    Thanks again for an insightful article

    P.S. Would you mind sharing your current allocation…..? and it would be great to get a recap on your progress!
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