Just what I was looking for.

Cheers =)

Ziv.

-William

Another great post! Thanks for the last year’s wonderful posts and ideas, can’t wait for the next one =)

Anyways, it turns out the Mr. Market awoke in a rather dismal mood these past few days, and I have been waiting to invest a bit (still in college, just thought to try), so I thought of starting to buy soon.

You posted a link to some site that gives you really good FCF data, 5-7 years back I think, but I can’t seem to find that link now, someone care to help me with this one?

Thanks upfront,

Ziv.

“I tried to change my last name to Enroni”

Frigging hilarious…all the best in 2009.

-Crip

I havent investigated General Mills(GIS) in-depth at all but simply by spotting 4.5 billion of cash spent on sharebuybacks at those high prices (last 4 years) makes me wonder if management is having a party or what…

they’ve retired aprox 30 mill shares oustanding in that time frame.

Someone correct me if I’m wrong

First, please call me Robert.

Second, the errors you note are correct. Allow me to provide what I believe are the accurate numbers (which I invite you to check).

Price/Shr $26.60

- ShE/Shr $17.23

Premium Paid $9.37

RFCC Adjustment $10.55

at 12.6%

OE/Shr $2.50

Adj OE Yield 23.73%

The intent is to recognize that accumulate shareholder’s equity lacks the uncertainty associated with a wager on future cash flows. In other words, the shareholder’s equity per share portion of the share price amounts to a dollar paid for a dollar earned. The remainder is the premium the investor is paying for future earnings (net of the cost of funds tied up in purchasing the shareholder’s equity). This allows the investor to look at yield for owner’s earnings in comparison to the premium, but it requires that the opportunity cost with purchasing shareholder’s equity be accounted for. So, the premium would be increased by the investor’s required return (or, alternatively, shareholder’s equity should be reduced accordingly), before calculating the owner’s earnings yield on the premium. Even at 23.73 percent, among the universe of investment candidates Buffett can consider, this return is attractive.

Robert

I’m new to this website and don’t know Kraft Foods (KFT) at all, but I’m really wondering about your math….

“Interestingly, the stock has $17.23 in accumulated equity of $26.401 trillion … adding an addition $5 trillion in owner’s earnings per year. So, the investor is paying $9.41 ($26.64 minus $17.23) to earn a $3.26 ($5 trillion divided by 3.8 million shares), for a investor-realized return on investment of 34.69 percent.”

I am unaware of any other definition for “trillion” except the US 1,000,000,000,000 or 10^12, and the UK 1,000,000,000,000,000,000 or 10^18. I’m believe you mean billion, with a “b”, and not the UK 10^12, but the US 10^9. KFT has a current market cap of $39.08B, that’s $39,080,000,000.

By the way, $3.26 is not $5 trillion divided by 3.8 million shares.

$5 x 10^12 /( 3.8 x 10^6 ) = 1.3 x 10^6, that is, not $3.26, but $1.3 million.

Even if you do mean *B*illion, it is still $1300. This is a long way off.

After this you’ve lost me completely. I can’t even guess what you are trying to say.

Thank you in advance for your re-edit.

As you scan the headlines in the near future about various endowments, pensions, and foundations losing their shirts in 2008 and cutting their 2009 operating budgets, return and reflect on this point. Notice in these articles the equity allocations and think on Joe’s point. It is one of most misunderstood axioms of investing that risk-return is linear or even parametric. Nonsense! It’s a shell game of: find the leverage.

There’s an interesting article published by the hedge fund group Bridgewater Associates. It is written by their founder Ray Dalio titled “Engineering Targeted Returns and Risks” at http://www.bwater.com/Upl... I think that in the last Forbes 400 Dalio was in the top 50 or so. Maybe the top 20.

Some of it may draw a “Ha-rumph” from the crowd regarding financial engineering and the use of leverage as a boondoggle. However, the interesting points are related to Dalio’s discussion of “The Optimal Beta Portfolio” on page 2. I quote: “Since the risk-adjusted returns of asset classes are broadly similar (and not reliably known), and since their expected returns are greater than that, of cash, the expected return and risks of these asset classes can be made similar and adjusted to deliver returns closer to your target by using leverage or leverage-like techniques.” Essentially, what this means is that when you strip out the implied leverage of “riskier” asset classes like equities, private equity, and real estate the returns are similar for all asset classes. Thus an extreme overweight to equities just exposes you to greater equity asset class volatility.

I’ll leave it to you to decide the applicability of this article, but it does play to the point that you don’t just have to own stocks nor should you. This does not mean, however, that if you are a great analyst and can pick stocks (particularly uncorrelated workouts) that you shouldn’t be 100% allocated to stocks.