1. the actual liquidation value of those assets (not just what Yahoo! automatically calculates as “tangible book value”; and,
2. what other liabilities management will ring up before the business returns to positive cash flow or shuts down.

Peter Lynch did say something to the effect of knowing what the “inventories” are really worth. It’s easy to quickly calculate the sale price of two tons of cotton, but what is the proper “value” of two tons of bright orange cotton shirts?

If it’s too hard, move on.

It depends on how bad the negative cash flow is and if it’s going get worse and continue in the future. Negative cash flow KILLS value and ends up eating shareholder equity (aka book value).

Also, don’t pay too much attention to balance sheet “assets”. I think Peter Lynch said once those numbers can always be fudge around but liabilities can not. I rather looks for “cash rich” assets on the balance sheet. This is very hard to fudge. The whole point of a business is to generate cash, not inventories or property. If 2/3 of the balance is made up of inventories it sounds to me the company has a problem selling their goods which is a bad thing. If the company is in an industry where every year the next gen model replaces the current one (i.e. electronics, retail) then the unsold goods will probably have to be written off.

But 1/3 price to book is a huge MOS, so it warrants a look. But it all depends on the business.

My 2 cents.

Thankyou for your help.

The market indexes `always go up over time` because they offload losers and recruit winners to take their places.

Intrinsic value only exists `god willing and the creek dont rise`. The creek is rising and all bets are off. The stocks that make up the indexes have MANY splits that can be unwound. Just because a stock is low-priced does not mean it cant get reversed-split and start back down again.

AEO looked bad on a stockchart in January and still looks just as bad today. Think about maybe investing in the Salvation Army stores. WMT looks good but is probably not a value play.

How did your talk with your sister go? I hope she stayed in cause clearly she will be much happier now.

BTW, I just found this site and it looks great!

That said, I can’t stop people from googling Buffett early partnership letters and reading through the results. But I am certainly not going to be a party to copyright infringement – especially against a guy with such deep pockets!

In mentioning the letters from the old Buffett Partnership, you say “no, I can’t send them to you and I won’t post them without Buffett’s express permission” but this is a bit misleading — many of the letters, including the one you quote from, are freely available online.

Here is a link to all the letters: [link removed]

Here is a link to the January 1961 letter you quote from: [link removed]

As you can see if you follow these links, the letters are imperfect scans because a letter or two at the end of a line sometimes gets cut off by the right margin, but they are a very useful cache of information for investors.

EMVELCO Corporation (EMVL) seems to have a break-up value >3$/share but trades for less than 0.5$. It is a tiny company which has put its money into loans.

Greetings,

Obststaude