# Graham - Appraisal method



## goponcho (23 June 2015)

So reading the intelligent investor. Chapter 8 is security analysis for the lay person.
Graham talks about common stock analysis and coming up with a valuation:

Valuation = estimated future earnings x capitalisation factor

And the capitalisation factor is meant to account for a whole range of things pertaining to the quality of the company eg long term prospects, management, capital structure, dividends. Uses a cap factor ~8-20

This seems soo inaccurate to pick a cap factor? Does anyone use this method to value a company?


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## dreamxite (13 July 2015)

goponcho said:


> So reading the intelligent investor. Chapter 8 is security analysis for the lay person.
> Graham talks about common stock analysis and coming up with a valuation:
> 
> Valuation = estimated future earnings x capitalisation factor
> ...




The cap factor is just a very general 'multiple', something like PE. But from my understanding not many ppl use that. Most people use PE (which is inaccurate), FCF multiples, EV/EBIT or DCF


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## Value Collector (13 July 2015)

goponcho said:


> This seems soo inaccurate to pick a cap factor? Does anyone use this method to value a company?




There is not a one size fits all cap factor or Pe you can use to value all businesses.

This is where your business skills come in, this is where guys like Buffett excel, because he understands businesses, not just accounting.

if you were buying into a local news paper, with a dwindling advertising base, you may not want to pay much more than the net assets or a Pe of 2 or 3. However if you are buying into a media company like Disney, with growing revenues, and a diverse asset base, and long life content, and high returns on equity, you would be willing to pay more than the net assets and probably accept a much higher Pe.


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## luutzu (13 July 2015)

goponcho said:


> So reading the intelligent investor. Chapter 8 is security analysis for the lay person.
> Graham talks about common stock analysis and coming up with a valuation:
> 
> Valuation = estimated future earnings x capitalisation factor
> ...




Discussed elsewhere on AFS.

Use V = E x (8.5+2g).
Where E = current earnings, g = expected growth rate over next 7 to 10 years.

So if g is est. to be 2; V = E x (8.5+4)

You could use the E as simply the reported earning and use this for a quick estimate. But I'd take a closer look to see the earning power for E, and to also estimate the g potential.

It's simplistic and too easy and what not... but not really. 
Very difficult to get the E estimate, got to do a lot of work to get a good est of the g over next decade.

Difficult in that you will need to really understand the business, the industry; know the company's financial performance and position/solvency etc. know its plans and competitors... But once you're familiar with the company and the business... it can be quite simple and quick.


The most useful thing out of it is, as Graham have said... you can play around with these two variables and can gauge the implication of your own estimate as well as that of the market through the current quoted price.

That is much more valuable than doing DCF where you just look really smart doing it, but won't have a clue as to what went right or what went wrong to repeat the right and avoid the wrongs. 

And btw, I have an app for it


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## tech/a (16 July 2015)

Doing some work on F/A and T/A methods.

Are there any papers anyone knows of which
explores and tests this or any other F/A or
T/A method which has a quantified conclusion.

I have some from Dr Bruce Vanstone and a few others.
Adding to the collection.

Graham seems to be well followed in the F/A field.
Would love to get my hands on anything offered up
in his book the Intelligent Investor which has been
tested.

Thanks.


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## ROE (16 July 2015)

tech/a said:


> Doing some work on F/A and T/A methods.
> 
> Are there any papers anyone knows of which
> explores and tests this or any other F/A or
> ...




Plenty of super investors use Graham principles but they all has their way of picking stock and adapt it to their style
but Graham principles is the foundation.

https://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-and-Doddsville
most of these are old.

Seth A. Klarman current fairly young living legend using the same principle
https://en.wikipedia.org/wiki/Seth_Klarman

Aussie Kerr Neilson

I am sure there heaps more around


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## craft (16 July 2015)

luutzu said:


> The most useful thing out of it is, as Graham have said... you can play around with these two variables and can gauge the implication of your own estimate as well as that of the market through the current quoted price.
> 
> That is much more valuable than doing DCF where you just look really smart doing it, but won't have a clue as to what went right or what went wrong to repeat the right and avoid the wrongs.




The formula presented here doesn't allow you to explore the two most important aspects of determining what a business is worth. The cost of growth and the profitability of growth.

Acknowledging the limitations of DCF is smart - throwing it out because of the limitation is dumb - DCF more than any other approach  forces you to think about the valuation drivers. Your assumptions on these drivers is the grounding for ongoing monitoring of how reality unfolds against your assumptions (against your story). 

If you haven't got a 'full' story you haven't got a robust basis for trade management and if you haven't got trade management your down to relying on luck or prescient prediction. Luck and prediction are not my strong suits (actually I think they are a stupid basis for risking money)  but I manage to scrap through with trade management.


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## luutzu (16 July 2015)

craft said:


> The formula presented here doesn't allow you to explore the two most important aspects of determining what a business is worth. The cost of growth and the profitability of growth.
> 
> Acknowledging the limitations of DCF is smart - throwing it out because of the limitation is dumb - DCF more than any other approach  forces you to think about the valuation drivers. Your assumptions on these drivers is the grounding for ongoing monitoring of how reality unfolds against your assumptions (against your story).
> 
> If you haven't got a 'full' story you haven't got a robust basis for trade management and if you haven't got trade management your down to relying on luck or prescient prediction. Luck and prediction are not my strong suits (actually I think they are a stupid basis for risking money)  but I manage to scrap through with trade management.




Luck and prediction is not your strong suits and you recommend DCF? Where people have to know interest rates, earnings, and market forces over the next 5 to 10 years?


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## craft (16 July 2015)

luutzu said:


> Luck and prediction is not your strong suits and you recommend DCF? Where people have to know interest rates, earnings, and market forces over the next 5 to 10 years?




You just don't get it do you! I guess some of the most important thing's can't be explained or at least I can't explain them.


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## luutzu (16 July 2015)

craft said:


> You just don't get it do you! I guess some of the most important thing's can't be explained or at least I can't explain them.




You do realise that a business is an organic entity right? One that live within constantly changing micro and macro environment. So the effect of one having on another, and another... you seriously think that can be predicted or estimated or know with the kind of certainty that a mathematical model require?

Take Australian retail - Lidl could come in and set up shop; Costco is already here and could expand; Walmart could take a bite; maybe eBay and some Chinese firm like Alibaba... What effect would that have on WOW if any of those scenario were to happen? Can they be predicted?

Since they can't reliably be predicted, to make assumptions and then plug it into a model doesn't make it any more accurate or reliable.


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## craft (16 July 2015)

luutzu said:


> you seriously think that can be predicted or estimated or know with the kind of certainty that a mathematical model require?




I think you don't get it because you don't listen. What you have imputed to me is the exact opposite of what I said - or at least what I think I said.


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## luutzu (16 July 2015)

craft said:


> I think you don't get it because you don't listen. What you have imputed to me is the exact opposite of what I said - or at least what I think I said.




Maybe I know what you really are saying without you actually having to say it 

You think that there's some limitation with DCF yea? But it's not too bad that it should be ignored and discarded - just be aware of the issues and tweek or not believe it too much, or something like that.

Fair assumption of what you're saying?

I heard similar words from Damoran from NYU. He with a bunch of DCF models.

He said he can't value Apple because he love their product too much, that it'll be biased and if he add a bit higher or lower here and there, the model will be stuffed. Further, that whatever value the stock is, the model can make it happen. So be aware of that biases and try not to be bias.


eeermm... Did I just repeat that out loud? People actually think that that's wisdom?

Anyway, let's just put it down to me not knowing high finance.


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## craft (16 July 2015)

luutzu said:


> Maybe I know what you really are saying without you actually having to say it




Maybe you can't learn anything because you already know it all.


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## galumay (16 July 2015)

craft said:


> Maybe you can't learn anything because you already know it all.




That is awfully polite of you craft! My wife had to ask what on earth i was laughing like that for!


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## luutzu (16 July 2015)

Ah well, every village has its idiot.


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## Joe Blow (16 July 2015)

Just a reminder to keep this thread on topic and avoid conflict with others. There's some great discussion in this thread so far, so please keep it coming. Thanks!


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## luutzu (16 July 2015)

I thought the text below are pretty straight forward.

How do you read that, and keep reading a couple more examples he used to illustrate... How do you not understand how powerful it is.

I would understand you'd have a hard time if you're paid to look smart and need to look busy every day with interest rate forecasting and projections and street gossips... But otherwise... it's good to know who we're up against sometimes


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## craft (17 July 2015)

luutzu said:


> I thought the text below are pretty straight forward.
> 
> How do you read that, and keep reading a couple more examples he used to illustrate... How do you not understand how powerful it is.
> 
> ...




You of course would know that Graham latter adjusted his formula to include a constant of 4.4/risk free rate.  From that you can determine that the constant of 8.5 infers an equity risk premium of 7.36%. 

Do you think 7.36% is the right equity risk premium for the risk associated with holding shares?  Do you think every company no matter what its size, operational leverage, earnings risk, financial structure etc etc. deserves the same equity risk premium?

According to the formula the P/E goes from 8.5 for a no growth company to a P/E of (2xgrowth rate + 8.5) to account for growth.  Do you think all growth is of equal value?  Do you think a company investing $4.90 to get $5 growth is equivalent to a company who only has to invest 50cents to get $5 growth?  Because the formula implies there is no difference.

And as you use the original formula do you think the relative value of the risk free rate has no impact on equity prices?


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## luutzu (17 July 2015)

craft said:


> You of course would know that Graham latter adjusted his formula to include a constant of 4.4/risk free rate.  From that you can determine that the constant of 8.5 infers an equity risk premium of 7.36%.
> 
> Do you think 7.36% is the right equity risk premium for the risk associated with holding shares?  Do you think every company no matter what its size, operational leverage, earnings risk, financial structure etc etc. deserves the same equity risk premium?
> 
> ...




I'm sure stuff like risk-premium, risk free and a bunch of Greek alphabet is really impressive to a lot of people. And quantifying risk/return to the nearest decimal will just blow their mind too... but I'm just too simple to think in foreign languages and too poor to pay for fluff like that.

Funny though... I've been reading "Distant Force" - the history of Teledyne. Henry Singleton and his executives bought over 100 companies and so far I haven't read them using DCF or risk-free rate or things you're talking about in buying companies. Don't know why or how they buy businesses without these stuff. Just simple PE ratio will do, apparently.


Yea... the value of a business will change if I predict future interest rates is X instead of Y. And remain at X for n year instead of at X for m year.

Then it will change again when next month I come back with forecast that it will be X+0.112.

Then change again because it's X+x2 and unemployment rate is blah instead of dah.

Do you buy business for real or do you just buy them on paper?

And do you pay for businesses at their precise price or do you only pay at a much lower price than the indicated estimate of approximate range of values?

What happen if you predict it costs X to X + $1million and then the CEO thought to spend $10,000 on a coffee machine?

---

Let's take a wild guess of how a good business with outstanding competitive position and able management works...

Say I'm precisely, perfectly spot on that it earns E. And I am able to know that the management is not asleep at the wheel, that they know how far they can go with prices and margin...

Then let say interest rate now goes up and costs of business is much much more than it was and E would be E-1 now.

What do you think management who's awake and know their business position would do? They'll probably raise the price or hedge or do whatever it is to bring an otherwise E-1 back to E. Why? Because any sane business person would when they could. And if the company's position mean they can't, then maybe you wouldn't invest in it in the first place.


What you and I, as minor investor and analyst... as people who have no clue and no influence on the business and its policies... You can think that E will be E-1 if i moves by 1% if you like; it just doesn't mean management policies will agree with that.


Anyway... keep doing what you're doing if it works for you. 
I'm perfectly clueless about what I don't know so what harm could it do to anyone?


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## craft (17 July 2015)

luutzu said:


> Anyway... keep doing what you're doing if it works for you.




Ok Thanks.



luutzu said:


> I'm perfectly clueless about what I don't know so what harm could it do to anyone?




You know I have seen this so often, people dangerously half armed with a little knowledge,  not least around the Roger Montgomery valuation formula saga,  that it’s quite heart breaking but seemingly inevitable.  Reality will mug you at some stage – I hope learning the hard way doesn’t cost you too much.  (Actually I don’t care if it costs you heaps – It’s more a hope that people starting out don’t come under the misconception that you have a clue and get harmed by it)  

Why is Fundamental Analysis always hijacked by Fundamentalists?

I'm considering this exercise in futility finished.


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## luutzu (17 July 2015)

craft said:


> Ok Thanks.
> 
> 
> You know I have seen this so often, people dangerously half armed with a little knowledge,  not least around the Roger Montgomery valuation formula saga,  that it’s quite heart breaking but seemingly inevitable.  Reality will mug you at some stage – I hope learning the hard way doesn’t cost you too much.  (Actually I don’t care if it costs you heaps – It’s more a hope that people starting out don’t come under the misconception that you have a clue and get harmed by it)
> ...





If you think investing is about precise valuation, you might be focusing on the wrong thing.

Might want to delegate the pricing power, product innovation and business development to management who live and breathe their business.

You're buying a living business, run and directed by living and thinking people; interacting and strategizing to gain market share and grow sales and profit... 

You are not buying a piece of paper or a bond or a work of art or a bank deposit. 

Yet somehow you think it'll be fixed and on top of that, priced it as fixed and to a degree that any slight changes in any one of the many variables will affect and made obsolete all that hard work.

If that make sense to you... sure, why not.

---

Man... appreciate your concern and all. But if I lose money on my decisions, I'll know exactly why and how it goes wrong. I doubt very much you'll know how or why you were wrong. Why? Because there's a bunch of variables that could each individually or all or some or most work together to make it wrong - and given the timeframe factor to the mix, you'll be a genius to pin point where and how and what goes wrong.

Equally important, you won't know why you got it right either.

Take a look at your past mistakes or successes. I bet you cannot be sure why you were wrong or right.


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## craft (17 July 2015)

luutzu said:


> If you think investing is about precise valuation, you might be focusing on the wrong thing.




Your continuous misrepresentation of what is said is infuriating.  



craft said:


> Acknowledging the limitations of DCF is smart - throwing it out because of the limitation is dumb - *DCF more than any other approach  forces you to think about the valuation drivers. Your assumptions on these drivers is the grounding for ongoing monitoring of how reality unfolds against your assumptions (against your story).
> 
> If you haven't got a 'full' story you haven't got a robust basis for trade management *and if you haven't got trade management your down to relying on luck or prescient prediction. Luck and prediction are not my strong suits (actually I think they are a stupid basis for risking money)  but I manage to scrap through with trade management.




Anyrate, no doubt you will impute some other crap to me and continue an argument of your own imagination, but I'm done, I won't respond further because I won't see it.


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## luutzu (17 July 2015)

craft said:


> Your continuous misrepresentation of what is said is infuriating.
> 
> 
> 
> Anyrate, no doubt you will impute some other crap to me and continue an argument of your own imagination, but I'm done, I won't respond further because I won't see it.




I know you think DCF allow you to monitor valuation driver and all that; I just don't see it. Don't take it personally.

Why don't you pick a company you have analysed in the past and tell us what drove its value since?

I hold a few stocks and I could never work out how long term bond rates, risk free and risk premium and all that affect its earnings. I'm pretty sure they do, to some extend... quantifying it is another matter...So I let the company's financial managers take care of that since I have no clue.

Anyway, I could understand where Graham is coming from, I could look at historical examples and could figured out if it'll work or not. I'm happy with it and so let's do what we're each comfortable with.


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## Klogg (17 July 2015)

luutzu said:


> That is much more valuable than doing DCF where you just look really smart doing it, but won't have a clue as to what went right or what went wrong to repeat the right and avoid the wrongs.




This may sound odd, but the value I get out of thinking (and I mean really thinking properly, including the reading required) for DCF inputs is far greater than the value it spits out. Generally, if I know the inputs to the DCF well (within reason), then I get a good feel for the margin of safety involved.

For example: If you were to use the very simple approach to mining services companies about 3 years ago, you'd get some wonderful valuations popping out the other end - and the earnings of these complied with all accounting measures. On the other hand, the DCF would have uncovered negative free cash flow as a result of huge amounts of capex... a huge risk.

It's about identification of risks/problems associated with free cash flow, not about a precise valuation.


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## luutzu (17 July 2015)

Klogg said:


> This may sound odd, but the value I get out of thinking (and I mean really thinking properly, including the reading required) for DCF inputs is far greater than the value it spits out. Generally, if I know the inputs to the DCF well (within reason), then I get a good feel for the margin of safety involved.
> 
> For example: If you were to use the very simple approach to mining services companies about 3 years ago, you'd get some wonderful valuations popping out the other end - and the earnings of these complied with all accounting measures. On the other hand, the DCF would have uncovered negative free cash flow as a result of huge amounts of capex... a huge risk.
> 
> It's about identification of risks/problems associated with free cash flow, not about a precise valuation.




There's no reason why you can't work out capex and identify earning power and cash flow without using DCF modelling.

To me, I spend most or all of the time understanding the business and its financials. Once I'm happy with the position and the quality, valuation is very simple.

So while the valuation looks simplistic, and it is just simple algebra, it's never done by simply plugging in the reported E with some rate of growth expected for the industry or economy. 

But you know, to each his own as they say.


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## Value Collector (18 July 2015)

tech/a said:


> Are there any papers anyone knows of which
> explores and tests this or any other F/A or
> T/A method which has a quantified conclusion.
> 
> .




To me, F/A or value investing, is not about pinning a companies valuation down to an exact number, I think graham said something like "you don't need to know a mans exact weight to know he is obese and you don't need to know a woman's exact age to know if she is old enough to vote", and to be honest, without knowing exactly what the future holds any valuation is not going to be exact, because none of us know exactly what business conditions will be in the future.

Also, it's not all about formulas and ratios, you need to be a business man at heart, and understand the businesses and managements you are applying your formulas and ratios to.

Buffett references this in one of his letters saying something like, You have to be able to distinguish the characteristics that provide a company with longterm competitive strengths, eg applying the same formula to the earnings and assets of a single product toy company selling pet rocks or unbranded Hulu hoops as you do to a single product toy company that sells barbies or monopoly is not going to do you to good.

I believe it's the business acumen of the value investor that will lead him to the high quality companies, from there the earnings and asset formulas and ratios just provide him information about how much he can pay for these companies in order to make them good investments.

Anyone that takes formulas and starts applying them to random companies, ignoring the business side, is going to fall into lots of traps, and miss some holy grails.


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## craft (20 July 2015)

luutzu said:


> There's no reason why you can't work out capex and identify earning power and cash flow without using DCF modelling.
> 
> To me, I spend most or all of the time understanding the business and its financials. Once I'm happy with the position and the quality, valuation is very simple.
> 
> ...




Lutz

You are so contradictory it is unfathomable.

All anybody has said to you here is that you need to understand all the value drivers of a business to have a complete story.

You are correct that once you have the necessary assumptions of value drivers nailed it is incredibly simple to do a valuation of your story.  [Even a DCF.]

Yet you continue to run this argument that a shortcut estimate that ignores important value drivers will suffice.

So without running off on some incompressible contradictory diatribe could you explain to me how the Graham method deals with different costs of growth?  Or do you think the cost of growth is the same for all businesses or do you not think cost of growth is a valuation driver?


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## luutzu (20 July 2015)

craft said:


> Lutz
> 
> You are so contradictory it is unfathomable.
> 
> ...




How was that contradictory?

How could I get any idea of the company's growth over next decade if I do not know its business and industry well enough? 

How could I have a good idea of its earning power if I have not look at its books? It's implied that I'd have to do some averaging and read and try to guess the successes of its R&D efforts, its innovation etc?

To predict ten years into the future will take a Nostradamus... or takes an idiot like me simply "predicting" that a dominant player in an established industry will continue doing what it has done for the past few decades.

--
If you read towards the end of that section, Graham did mention that of course interest rate play an important role in valuation. And I am guessing he figured out how to work it into this model in 1975, but he said it right there that at the time no model really satisfactorily take that into account so this shorthand model of his, and he said if it's assumed to be true, does serve an important purpose in valuing growth stocks and know its price implication.


Anyway, I don't know how Graham does it, or how anyone does it. Simply take what I can understand from their books and apply it with my own "understanding" of business.


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## craft (20 July 2015)

craft said:


> Lutz
> So without running off on some incompressible contradictory diatribe *could you explain to me how the Graham method deals with different costs of growth?  Or do you think the cost of growth is the same for all businesses or do you not think cost of growth is a valuation driver?*






luutzu said:


> How was that contradictory?
> 
> How could I get any idea of the company's growth over next decade if I do not know its business and industry well enough?
> 
> ...




.....


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## luutzu (20 July 2015)

craft said:


> .....




That's pretty clever. 

Humour is your strongest point craft. Nuance and thinking might not be though.


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## craft (20 July 2015)

luutzu said:


> That's pretty clever.
> 
> Humour is your strongest point craft. Nuance and thinking might not be though.




Your right - I'm an idiot, only an idiot would try to help you.


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## luutzu (20 July 2015)

craft said:


> Your right - I'm an idiot, only an idiot would try to help you.




I like you craft. Serious. I know you want to help.

I thought I want to help too... But ey, some people just can't be help.


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## craft (20 July 2015)

luutzu said:


> I like you craft. Serious. I know you want to help.
> 
> I thought I want to help too... But ey, some people just can't be help.




Crickeys our motivations are the same and on an anonymous forum our credentials are for all intents and purposes the same.  No wonder posting so often seems futile.   Unless somebody already has the insight to judge our messages apart mine are as useful or not as yours.

O.K so you have helped me.  Motivation to do something more useful with my spare time.


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## Trembling Hand (20 July 2015)

luutzu said:


> I like you craft. Serious. I know you want to help.
> 
> I thought I want to help too... But ey, some people just can't be help.




Dude you are leaving a **** trail wherever you go. Maybe it's time to sit back and re-asses your approach. If this was any other social setting other than the internet and everyone was throwing their hands up in the air and walking away from you would have to think one of two things,
1 You are surrounded by fools
2. There is one big fool, and you are it.


Just saying......


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## luutzu (20 July 2015)

Trembling Hand said:


> Dude you are leaving a **** trail wherever you go. Maybe it's time to sit back and re-asses your approach. If this was any other social setting other than the internet and everyone was throwing their hands up in the air and walking away from you would have to think one of two things,
> 1 You are surrounded by fools
> 2. There is one big fool, and you are it.
> 
> ...




Being socially inept is different from being a fool. Well, it is foolish to not get along and foolish to not know how to win friends and influence people... but you know, I actually do get along with people in real life - and we only rarely talks about the weather too.

Anyway, I guess the business I'm thinking of starting where I tell people they're wrong won't be a hit then.


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## luutzu (20 July 2015)

craft said:


> Crickeys our motivations are the same and on an anonymous forum our credentials are for all intents and purposes the same.  No wonder posting so often seems futile.   Unless somebody already has the insight to judge our messages apart mine are as useful or not as yours.
> 
> O.K so you have helped me.  Motivation to do something more useful with my spare time.




what could be more useful than having your thinking challenged? Even by a fool?

Anyway, I too should stop procrastinating and get back to work. Those bills aren't going to pay themselves.


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## goponcho (21 July 2015)

Hi guys,

Thanks for the discussion. Not that i understand most of it, even if it is obvious, but it gives a beginner a chance to think about the basics, at the very least.

So from the banter i gather there are people that use the appraisal method, and others who use the DCF to come to a valuation?

Where is that page "security analysis for the lay investor" from? Couldn't find the passage in II.
- ie where is that formula from?

Regarding Graham's apprasial method in II - it was based on an estimate of future earning power x a capitalisation rate. I think a reasonable guess of earning power seems feasible from average past data. However, i think it would be difficult to transform an array of qualitative factors into one number for a capitalisation rate.


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## Value Hunter (8 December 2020)

I was just reading this thread and thought I would dig it up from the graveyard. I will make a few observations:

1) Graham tended to have a highly diversified portfolio and advised most others to do the same. With that context in mind his valuation approaches genreally only needed to be good enough on average across a basket of stocks rather than being highly accurtate in every individual case.

2) The risk premium implied in his formula was based on interest rates and market conditions at the time he published his formula. I am not sure he intended the formula to be permanently useful.

3) Buffet in one of his shareholder letters said that he uses the risk free rate to value all companies so that he is using an equal yardstick to measure all companies with. He would then consider risk separately by avoiding risky/inferior business and also by requiring varying discounts to intrinsic value for different kinds of businesses, rather than bake risk factors into his discount rate as many choose to do with DCF type models.

4) Professor Bruce Greenwald (who some would argue is the modern eras "Dean of Wall Street") in his seminal book "from Graham to Buffet and beyond" heavily criticizes DCF models because they are highly unstable and do not sufficiently segregate/quarantine more certain knowledge from highly speculative assumptions hence garbage in garbage out and he proposes various alternative and earnings based valuation models. His book is worth a read and highlights in the extreme instability of DCF models (small input changes lead to huge valuation changes, etc).

5) When you are buying stocks you should look for a level of undervaluation which is so glaringly obvious that it slaps you in the face and is visible instantly. If you even need to do a DCF to determine if the stock is undervalued its probably not undervalued enough.


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