“i don’t even worry about those kinds of models because you tend to overthink the whole darn thing”.

to me that translates into:

“i have no clue about DDM, free cash flow, residual income, or other appopriate growth models that better, more experienced investors use because that requires work and i’m just trying to sell books to make a lot of money for myself.”

I just use this formula:

EPS (ttm) x 1,(expected growth rate after margin of safety)^5 x average P/E

Then I discount that price with 1,09^5 to get the intrinsic value estimate.

If the price is far below that estimate, then I will look into the company some more and do some ‘real’ analysing and valuation.

I think Town has a wonderful stock trading method for active investors. There are a zillion ways to make money in the stock market, and Town shows you one side of that.

I do disagree with his “sticker price” as a valuation method. His sticker price attempts to put a price on the stock and then discount it back to today – using nothing more than market mutliples. Basically, this business will be worth “X” because today everyone is paying “Y” and that is likely to continue. Constantly increasing the P/E ratio is a dangerous game – especially when it is a large part of your valuation method.

If you believe you can’t be “as good as Buffett”, so be it. I see no reason why people can’t be “almost as good” – a strategy that will likely result in great long-term results. Hey, I’m not “as good as Buffett”, but I’m still doing it.

And I believe you can too.

However on the basis Town only advises on buying into to fantastic business’s with 10 years of + 10% growth rates if an individual was to ignore the tools, markets and charts but followed Towns stock selection guidance he would still hold a set of great predictable business’s and considering price follows value wouldnt be too far from traditional value investing principles.

Town knows we cannot all be as good as Buffett when choosing business’s so he has designed a safeguard for investors to jump out if things start to go wrong and if the entry level was 50% of the sticker price which he says is a must, we can escape without losing money.

It is important to remember that stocks are pieces of businesses. Though you can learn to profit by actively trading stocks (or anything for that matter), there is another way: value and own a business.

If you focus on what truly matters to business owners (and buyers), you’ll quickly learn that net income, earnings, and P/E ratios mean nothing – they don’t help your company grow and your success is not determined by them. In fact, as a business owner, you’d want to keep net income/earnings (and hence P/E) as low as possible so you don’t pay high taxes – all while generating as much cash as possible.

In the end, we would be wise to take our advice directly from Buffett rather than from someone who translates Buffett into a system (myself included – we’d all be wise to read the Berkshire reports for ourselves). Consider Buffett’s lessons in the context of Town’s methodology:

For some reason, people take their cues from price action rather than from values. What doesn’t work is when you start doing things that you don’t understand or because they worked last week for somebody else. The dumbest reason in the world to buy a stock is because it’s going up.

We believe that according the name “investors” to [those] that trade actively is like calling someone who repeatedly engages in one-night stands a “romantic”.

Again – I’m not knocking Town or his methods, I’m simply reviewing his strategies in the context of valuing and owning businesses.