Comments on: Be Back Soon http://www.fwallstreet.com/article/192-be-back-soon Value Investing Blog Thu, 09 Sep 2010 19:16:04 -0500 http://wordpress.org/?v=2.9.2 hourly 1 By: Joe Ponzio http://www.fwallstreet.com/article/192-be-back-soon#comment-3164 Joe Ponzio Tue, 02 Feb 2010 04:02:00 +0000 http://www.fwallstreet.com/article/192-be-back-soon#comment-3164 For DCF where you're calculating future "unit volume" increases (or decreases), you would include changes in working capital. If, however, you're not ascribing any value to unit value growth, you would not include it. For example, in Apple, you would have to consider the investment the company needs/needed to make in working capital to pump out all of those new iPods and iPhones. For DCF where you’re calculating future “unit volume” increases (or decreases), you would include changes in working capital. If, however, you’re not ascribing any value to unit value growth, you would not include it.

For example, in Apple, you would have to consider the investment the company needs/needed to make in working capital to pump out all of those new iPods and iPhones.

]]> By: Joe Ponzio http://www.fwallstreet.com/article/192-be-back-soon#comment-3163 Joe Ponzio Tue, 02 Feb 2010 03:53:46 +0000 http://www.fwallstreet.com/article/192-be-back-soon#comment-3163 I considered it a while back. I agree that we need some extra functionality around here. I'm meeting with the designers next month to discuss another round of updates. Before that meeting, I'll ask the community what you guys and gals would like to add to the site. I considered it a while back. I agree that we need some extra functionality around here. I’m meeting with the designers next month to discuss another round of updates. Before that meeting, I’ll ask the community what you guys and gals would like to add to the site.

]]> By: Joe Ponzio http://www.fwallstreet.com/article/192-be-back-soon#comment-3162 Joe Ponzio Tue, 02 Feb 2010 03:50:06 +0000 http://www.fwallstreet.com/article/192-be-back-soon#comment-3162 Agreed. What is the definition of a good business? To paraphrase Ben Graham: A good business is one that can survive tough times; so, wait for tough times and then buy a good business. "Good" (in my opinion) doesn't necessarily mean that it fits all of the commonly accepted criteria for a "good" business (i.e., positive working capital, low debt-to-equity, etc.) A "good" business is one that is predictable. There is also a difference between "good businesses" and "good opportunities." When you find a good opportunity in a good business, you've struck gold. That said, you don't have to stick just with good businesses, so long as you squarely focus on good opportunities. Agreed. What is the definition of a good business? To paraphrase Ben Graham: A good business is one that can survive tough times; so, wait for tough times and then buy a good business.

“Good” (in my opinion) doesn’t necessarily mean that it fits all of the commonly accepted criteria for a “good” business (i.e., positive working capital, low debt-to-equity, etc.)

A “good” business is one that is predictable.

There is also a difference between “good businesses” and “good opportunities.” When you find a good opportunity in a good business, you’ve struck gold. That said, you don’t have to stick just with good businesses, so long as you squarely focus on good opportunities.

]]> By: Joe Ponzio http://www.fwallstreet.com/article/192-be-back-soon#comment-3161 Joe Ponzio Tue, 02 Feb 2010 03:43:43 +0000 http://www.fwallstreet.com/article/192-be-back-soon#comment-3161 No details. I focused on concentrated value investing while my partner focused more on financial planning. We were essentially running two different businesses for a long time, and decided to split into two separate entities, much like we had been operating for a number of years. No details. I focused on concentrated value investing while my partner focused more on financial planning. We were essentially running two different businesses for a long time, and decided to split into two separate entities, much like we had been operating for a number of years.

]]> By: Alex http://www.fwallstreet.com/article/192-be-back-soon#comment-3159 Alex Sat, 30 Jan 2010 02:05:16 +0000 http://www.fwallstreet.com/article/192-be-back-soon#comment-3159 An off topic coment but... I'm currenty wading through Bruce Greenwalds book ("Value Investing from Graham to Buffett") - I'd recommend it to anyone here. The book attempts to dissuade you from the DCF method and puts forward a "Assets Earnings Power" method of valuing companies. While I don't think DCF should be written off, the Greenwald method is much more conservative, which I like. An off topic coment but… I’m currenty wading through Bruce Greenwalds book (“Value Investing from Graham to Buffett”) – I’d recommend it to anyone here.

The book attempts to dissuade you from the DCF method and puts forward a “Assets Earnings Power” method of valuing companies.

While I don’t think DCF should be written off, the Greenwald method is much more conservative, which I like.

]]> By: Suchit http://www.fwallstreet.com/article/192-be-back-soon#comment-3158 Suchit Fri, 29 Jan 2010 19:20:09 +0000 http://www.fwallstreet.com/article/192-be-back-soon#comment-3158 I think Joe includes the changes in the calculation of owners earnings in the book. This and the treatment of deffered taxes for owners earnings purposes have me confused. I think Joe includes the changes in the calculation of owners earnings in the book. This and the treatment of deffered taxes for owners earnings purposes have me confused.

]]> By: Adam Gaglio http://www.fwallstreet.com/article/192-be-back-soon#comment-3157 Adam Gaglio Fri, 29 Jan 2010 14:01:03 +0000 http://www.fwallstreet.com/article/192-be-back-soon#comment-3157 Crap, That's what I get for acting like a know-it-all. I have always assumed that changes in working capital were like a capital expenditure. They're a necessary expense to keep the business going. And I think this is how Buffett treats them too. The statement in parentheses is just saying that companies using LIFO usually don't have large changes in working capital, not that it shouldn't be included in owner earnings. -Adam Gaglio Crap, That’s what I get for acting like a know-it-all. I have always assumed that changes in working capital were like a capital expenditure. They’re a necessary expense to keep the business going. And I think this is how Buffett treats them too. The statement in parentheses is just saying that companies using LIFO usually don’t have large changes in working capital, not that it shouldn’t be included in owner earnings.

-Adam Gaglio

]]> By: Ben http://www.fwallstreet.com/article/192-be-back-soon#comment-3155 Ben Fri, 29 Jan 2010 06:40:16 +0000 http://www.fwallstreet.com/article/192-be-back-soon#comment-3155 Here's a video of mr. mason hawkins, mba, southeast asset management definition of FCF or owner earnings http://www.bengrahaminves... Here’s a video of mr. mason hawkins, mba, southeast asset management definition of FCF or owner earnings

http://www.bengrahaminves...

]]> By: Allen http://www.fwallstreet.com/article/192-be-back-soon#comment-3154 Allen Wed, 27 Jan 2010 11:16:57 +0000 http://www.fwallstreet.com/article/192-be-back-soon#comment-3154 We're still waiting ... patiently .... We’re still waiting … patiently ….

]]> By: Alex http://www.fwallstreet.com/article/192-be-back-soon#comment-3153 Alex Mon, 25 Jan 2010 16:20:38 +0000 http://www.fwallstreet.com/article/192-be-back-soon#comment-3153 Hey Adam, Thanks for the reply. I had read Buffett's definition of Owner Earnings. I don't believe he does include changes in working capital. Take a look: If we think through these questions, we can gain some insights about what may be called "owner earnings." These represent (a) reported earnings plus (b) depreciation, depletion, amortization, and certain other non-cash charges such as Company N's items (1) and (4) less ( c) the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive position and its unit volume. (If the business requires additional working capital to maintain its competitive position and unit volume, the increment also should be included in ( c) . However, businesses following the LIFO inventory method usually do not require additional working capital if unit volume does not change.) The sentence in the brackets implies he only includes changes in working capital if they were investments in working capital to keep unit production at its normal level (i.e. similar to maintenance cap-ex). Your thoughts? Hey Adam,

Thanks for the reply. I had read Buffett’s definition of Owner Earnings.

I don’t believe he does include changes in working capital.

Take a look:

If we think through these questions, we can gain some insights about what may be called “owner earnings.” These represent (a) reported earnings plus (b) depreciation, depletion, amortization, and certain other non-cash charges such as Company N’s items (1) and (4) less ( c) the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive position and its unit volume. (If the business requires additional working capital to maintain its competitive position and unit volume, the increment also should be included in ( c) . However, businesses following the LIFO inventory method usually do not require additional working capital if unit volume does not change.)

The sentence in the brackets implies he only includes changes in working capital if they were investments in working capital to keep unit production at its normal level (i.e. similar to maintenance cap-ex).

Your thoughts?

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