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Bud Labitan
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I am an author of books related to the decision framing and optimizing processes of Buffett and Munger. These books are available at www.frips.com and: http://www.amazon.com/Bud-Labitan/e/B002D1ERT4 With integrity and patience, we can also earn superior profits by carefully evaluating facts and... More
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Bud Labitan
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The Four Filters Invention of Warren Buffett and Charlie Munger
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  • Intrinsic Value Estimator And Calculator For Windows

    This is a piece of freeware that I give out to help bring attention to my books on amazon.com and lulu.com. If you like it and find it useful for estimating the approximate "intrinsic value" of stocks and businesses, I would appreciate your mentioning my books to your friends.

    Disclaimer: This free software was designed by Bud Labitan. He has no business association with Seekingalpha, and any errors or omissions in the software are his own. He does claim that it has been tested and it is safe to use. Use caution in your growth assumptions and discount rate when using this simplified valuation model.

    (click to enlarge)

    Bud Labitan, MD, MBA
    is the author of several books including "The Four Filters Invention of Warren Buffett & Charlie Munger" , "Price To Value" , and "Moats: The Competitive Advantages of 70 Buffett & Munger Businesses"

    Disclosure: I am long BRK.A, BRK.B, KFT.

    May 24 10:17 AM | Link | Comment!
  • A Rough Valuation Of JPM With A Penalty Perspective.

    A Rough Valuation of JPM with a penalty perspective.

    Does JPM make for an intelligent investment or intelligent speculation today? Keeping in mind that valuations are estimations of the productivity of an ongoing business, how do we adjust in a penalty for the recent mark-to-market loss of about $2 billion in the first six weeks of the second quarter? For this risk taking debacle, and for simplicity sake, I adjust its forward growth rate downward. Think of it as an impairment to goodwill that places friction on potential forward growth rate.

    Let us do a simplistic valuation of the stock's intrinsic value per share. Starting with a base estimate of annual net income flow at a value of approximately $17,500,000,000 and the number of shares outstanding at 3,810,000,000 shares; we use an assumed FCF annual growth of 5 percent for the first 10 years and assume zero growth from years 11 to 15. Review the Free Cash Flow record here: http://financials.morningstar.com/income-statement/is.html?t=JPM

    The resulting estimated intrinsic value per share (discounted back to the present) is approximately $60.13.

    Market Price = $33.5
    Intrinsic Value = $60.13 (estimated)
    Price To Value (P/V) ratio = .56 and the estimated bargain = 44. percent.

    Before we make a purchase, we must decide ( filter #1 ) if JPM is a high quality business with good economics. Does JPM have ( filter #2 ) enduring competitive advantages, and does JPM have ( filter #3 ) honest and able management.

    Some industries have higher ROE because they require no assets, such as consulting firms. Other industries require large infrastructure builds before they generate a penny of profit, such as oil refiners. Generally, capital-intensive businesses have higher barriers to entry, which limit competition. But, high-ROE firms with small asset bases have lower barriers to entry. Thus, such firms face more business risk because competitors can replicate their success without having to obtain much outside funding.

    Growth benefits investors only when the business in point can invest at incremental returns that are enticing; only when each dollar used to finance the growth creates over a dollar of long-term market value. In the case of a low-return business requiring incremental funds, growth hurts the investor. The wonderful companies sustain a competitive advantage, produce free cash flow, and use debt wisely.

    Does JPM make for an intelligent investment or speculation today? Time is said to be the friend of the wonderful company and the enemy of the mediocre one. Before making an investment decision, seek understanding about the company, its products, and its sustainable competitive advantages over competitors. Next, look for able and trustworthy managers who are focused more on value than just growth. Finally ask: Is there a bargain relative to its intrinsic value per share today? If JPM can get its house in order, there may be a decent bargain here for the longer term investor.

    Bud Labitan, MD, MBA
    is the author of "The Four Filters Invention of Warren Buffett & Charlie Munger" and "Price To Value" and "Moats: The Competitive Advantages of Buffett & Munger Businesses"

    .

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    May 23 1:06 PM | Link | Comment!
  • A Rough Estimation Of Facebook's Intrinsic Value

    A Rough Estimation of Facebook's Intrinsic Value

    Does FB make for an intelligent investment or intelligent speculation today? Starting with a base estimate of annual Free Cash Flow at a value of approximately $950,000,000 and the number of shares outstanding at 2,140,000,000 shares; we used an assumed FCF annual growth of 15 percent for the first 10 years and assume zero growth from years 11 to 15. Review the Free Cash Flow record here:

    http://quicktake.morningstar.com/stocknet/CashFlowRatios10.aspx?Country=USA&Symbol=fb&stocktab=keyratio

    The resulting estimated intrinsic value per share (discounted back to the present) is approximately $11.14.

    Market Price = $34.03
    Intrinsic Value = $11.14 (estimated)

    I used a discount rate of 6.25% and the Moat appears to be narrow and shallow. The Moat can last as long as Google or Yahoo or Microsoft do not design a friendlier website. Once one of the big cloud providers designs a friendlier interface, the moat starts eroding.

    For example, if Google plus was easier to use, and it added features like a friendlier ebay style trading/barter/consulting it could take the lead. Thus far Google+ is too cumbersome and geeky to be useful. However, they are trying to make it better.

    Bud Labitan
    author of "The Four Filters Invention of Warren Buffett & Charlie Munger" and "Moats: The Competitive Advantages of Buffett & Munger Businesses"

    .

    Disclosure: I am long BRK.A, BRK.B.

    May 22 7:48 AM | Link | Comment!
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