I have followed your blog for the last couple of months and enjoyed your posts. You have a gift for explaining how to value businesses. The posts I enjoy most are ones where you explain how to value businesses (and how stock price followed value). I refer to WMT, JNJ, Buffet-CocaCola, Adobe and US Bancorp. Other posts while enjoyable are not as informative. Perhaps additional posts similar to Adobe where you looked at history and showed that buying a great business at less than intrinsic value - and holding on through precipitous price drop - and still coming out ahead. Entertaining and informative. Keep up the good work. Regards

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Love the site, great info that is easy to digest and use. One topic I have not seen you address. Share buybacks and the effect on shareholder equity. Esp. the effect on your equity growth calc. When a company undertakes a significant buyback the equity in effect goes down due to accoutning regs.

For example: I was looking at CBZ (CBIZ) trying to put a valuation on it. to big items cames to be of note: 1) two years of bad cash flow which I was willing to forget due to divesture of business segment. 2) large share buybacks. The share buybacks make the equity growth look bad, but cash flow is good.

I guess if you could give me some thoughts on addressing the buybacks that would be great.

Thanks.

Casey

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Joe,

I actually was admiring the site and the changes you made before I read this post. You've done a wonderful job, and the aesthetic appeal (not to mention the content) is a notch above almost any blog. And that's saying a lot, since I'm assuming you're not a techie by nature. Keep up the great work. You can rest well knowing that you're contributing to the betterment of human knowledge, a quest most people only think of doing.

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I echo the other's sentiments. I *Love* the blog and eagerly monitor the site for new posts.

I'd like your opinion on stock options (specifically 1 and 2 year LEAP calls) and if you feel it's compatible with Warren Buffett style investing.

I'm also interested to hear if you've read Greenblatt's "The Little Book that Beats the Market" and what you think of targeting companies based on a combination earning's yield and return on capital. I've been using his stock screener to help narrow down companies for further research.

http://magicformulainvesting.com/

Good stuff - keep it up!

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You asked "What's on your mind?"
To me the two most difficult questions to answer in your investment method are:
1) How do you really determine that a company has a sufficient "moat"? For example your analysis of American Eagle, is only as good as the assumption that its future will at least similar to the past, but it competes in a very difficult and unpredictable market. Assuming a 50% decrease in profits is far too conservative when competition and fashion determine the future, it is likely to be much more. The first pass, it seems to me is to identify companies that can both "survive" and prosper. Could you comment on this?
2) The second issue is "How do you know your sphere of competence?" From my limited experience, what you think you know about a business as a consumer or simply a student of business is far different than really understanding the business. Given that your business has some advantage in the market does not mean you have a great business until you understand the critical parts of the process of getting to that market with a profit. If you ask me Warren Buffett is not a great invester because he knows how to calculate a business's value, but because he can dissect apart what is needed to make a specific company great. Any advice on not deceiving oneself that you understand something you don't?

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Joe,

As a 1st year Accounting student (don't laugh people - I enjoy numbers) your blog is timely, interesting and very educational. From the first time I stumbled upon it (I had just bought JNJ and was reading comments on Google and voila!), to now it has been one of the few blogs (others are sports blogs) that I visit daily (more than once).

Simply put I devour the blog. One person who probably hates your blog (if he knew of its existence) would be my accounting teacher. In class whenever we discussions corporations, scandals, wall street, earnings, etc, I always challenge him with comebacks or counter arguments from the knowledge that I gained (some of it ) from here. It is quite funny to see him flustered. I LOVE IT. BTW he is a big believer in EMT.

Love the new format. Easy to read fonts, good categorization, good topics, sarcasm and wit. Can't go wrong.

Keep it up.

Giggsy: "United is Life"

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Hi all,

Thanks for the feedback, both here and on e-mail. I'll respond to each and every one of these in the upcoming days and next week.

Thanks a ton!

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Like the format, big fan of this site. It's definitely changed my thinking about valuation.

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"You are here" was an excellent addition. At first, I had a hard time figuring out where I was after clicking a link.

I only know of a few value investing websites, but your analysis and commentary is by far the clearest I've seen and is my favorite. What is MOST helpful to me is how you take specific companies and walk through value investing "filters" - both qualitative and quantitative - step by step, provide all your calculations and explain your conclusion (which is consistent with your analysis!).

My pet peeve with other VI sites is people say they just bought a stock but don't provide any insight as to why. Or it's "I just bought USG cheaper than Buffett" - 'nuff said. I don't find that helpful as a VI student.

At this point in my investing life, I've read: Warren Buffett Way, Buffettology, Intelligent Investor, Little Book That Beats the Market. (On my shelf: Security Analysis 1934, New Buffettology, Of Permanent Value) I am sold on value investing concepts, but what I need now is how to apply them to specific companies to identify terrific companies and acceptable bargain prices. That's what I like best about your site.

I'd love a checklist (like the Buffettology workbook) or an Excel template to use for evaluating opportunities.

Thanks again Joe - you are top notch!

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Since this is the "love Joe" post, I'll add my two cents. I try to check every day for updates, as I enjoy the challenging information. Keep up the good work! (When's that book out again?)

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Hi Joe,

Do you have any insight or wish to make any comments regarding the valuations that are available online at Wikiwealth.com?

I have recently conducted a comparison of valuations from three sources, namely, your valuations using your Excel spreadsheet, my valuations using your Excel spreadsheet and the valuations posted online at Wiki. In a nut shell, it appears to be a bit hit-and-miss to me, which does not leave me with a strong sense of confidence in any one source. The following are a few of the valuations that I was able to compare.

Johnson/Johnson: Joe = $83.10, Glenn = $83.31, Wiki = $74.30
Adobe: Glenn = $35.38, Wiki = $28.40
Harley Davidson: Joe = 53.50?, Wiki = $63.50 (Justin = $91.28)
Burlington Northern: Joe = $126.83, Joe = $96.05, Wiki = $129.70
Cisco: Glenn = $20.16, Wiki = $21.00
ITT: Glenn = $85.03, Wiki = $77.80
Precision Castparts: Glenn = $119.38, Wiki = $110.20
Walt Disney: Glenn =$69.46, Wiki = $39.00
Anadarko: Glenn $63.85, Wiki = $135.10
John Deere: Glenn $40.09, Wiki = $140.10

If it were not for the large delta in valuations for Walt Disney, Anadarko and John Deere I might be persuaded to just run with the Wiki calculations rather than grind my own numbers. I will have to double check Disney, Anadarko and Deere to see if I made an input error that accounts for the large delta from the Wiki values. Your thoughts?

Glenn

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Hi all,

I love Joe too! Sorry - I couldn't resist. ☺ I am going to try and answer each question; still, give me time as I can only really get one post a day up here.

Nick: Actually, I am a tech geek. Other than some initial coding help from a friend, I designed the site myself so I'm overjoyed that you guys like the design.

Paolo: The You Are Here navigation was crucial. As soon as I realized I couldn't get around, I wondered how everyone else was doing it!

Justin: My agents are currently shopping the book to publishers. We're waiting to hear back. I'll keep everyone posted with updates.

Glenn: I haven't checked out WikiWealth. I'll take a look in a few days and post some thoughts.

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Suggestion: There needs to be a mechanism to follow blog posts from start to current date, I often want to do that to re-read stuff on the site, so a next post, previous post kind of navigation would be really helpfull.

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For those interested I came across a website I wanted to share with everyone. www.secfilings.com. This website allows you to set email alerts for sec filings for the different companies, people or industries that you follow. You can also have the alerts sent as an RSS Feed.

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I have a question to put out to Joe and the Blog Community.

MTW just issues a 424B5 Sec filing for a shelf registration of 3 million shares. The purpose of the capital raised is to 1) Pay down debt and 2) General company operations.

MTW currently has:

-263 Million L-term debt
-10 Million S-term debt
-103 Million Cash
-126 Million Common Shares outstanding
-34% Debt to equity ratio (using Dec 2006 numbers)

The debt that they are retiring has a 5.9% yield.

After the offering the balance sheet will look like this:

-170 Million L-term debt
-124 Million Cash
-129 Million Common Shares outstanding
-22% Debt to equity ratio

Except for a buyback program in 2003, the company does not actively buy back its shares. Since 2000 the common shares have grown from 96 million to 129 million after this shelf offering.

What should I take away from MTW actions:

-With interest rates falling why wouldn't they just roll-over their debt to a more favorable interst rate?
-I always feel more comfortable investing in companies with no or low debt to equity ratios, but I did not feel that MTW was exceptionally high to begin with.
-I always study where companies buy back their stock to see if they are getting value for their purchase. By MTW selling their stock at these levels should I take that as a sign that they feel their stock has reached a "fair value".
-To be honest I would have felt better if the company announced that they were opening up a new plant or retooling a plant and decided to issue stock instead of debt.
-Is the company being good stewarts of capital?

I would like to get your feed back

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If there's anything that I would love you to elaborate for us (I've e-mailed you about this).

We seem to be doing quite well on the quantitative aspects. Regardless, we haven't really explored the psyche of Corporate Governance.

Issues such as:

- Annual Cash incentives
- Long-term Equity Incentives

What should be the TARGETS for which management should be receiving compensation on? Some companies will focus on EPS Diluted claiming it helps them retain focus from the top to the bottom line. Other companies, reward based on ROIC metrics and FCF efficiency (FCF/Net income).


Just to name a few! This has got to be one of the most important aspects given that management is CRUCIAL in our investments.

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Hello, The posted on September 27, 2007 reference a lot of the research on my site: http://www.wikiwealth.com... I wanted to update you on some changes to our approach and the reasons why your delta was very large. We now do a full analysis of each company using the intrinsic value and relative value approach, which further increases our quality. You will find the deltas are much smaller now, which confirms that your three sources were more in line.

The main reason for the difference in delta had to do with the stock beta and the discount rate. Our betas are now real time and feed into our discount rates approach, which is an industry weight average cost of capital. What this means, is you have more stability in the intrinsic value and great confidence in the analysis. If there are any further issues, please send me an email or post on our message board. Quality is our number one concern. Thanks you, Dave

BTW, this is the best investing blog I've seen on the internet. Keep up the good work.

David T. Durant
Founder, WikiWealth.com
david.durant@wikiwealth.com
http://www.wikiwealth.com...

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