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Mycroft  

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  • Morgan Stanley Analyst Cuts Accenture To Equal Weight, But I Strongly Disagree [View article]
    No went to 70% cash and maybe buying it back after they report soon.
    Mar 26, 2015. 12:39 AM | Likes Like |Link to Comment
  • Morgan Stanley Analyst Cuts Accenture To Equal Weight, But I Strongly Disagree [View article]
    That's Mycroft Free Cash Flow and not free cash flow. What I do is abstract finance and the $7.17 is to highlight just how powerful management is and how powerful the company is. I use 40 or so original ratios that I created that are abstract and its very hard to get a handle on them for an outsider. I will eventually release them all and you can understand how they all work. It took me 41 years of work to create them all, so don't be in a rush to try to master them as the business of analysis is not an easy one.

    One article at a time and one day at a time.

    Mycroft
    Mar 23, 2015. 09:24 PM | 1 Like Like |Link to Comment
  • Gilead Sciences: An Analysis Using Warren Buffett's Owner-Earnings Equation [View article]
    We obviously differ in how we calculate our numbers.

    2006 results

    (Incr) Decr. in Receivables $(184.4)
    +
    (Incr) Decr. in Inventories $(358.2)
    +
    (Incr) Decr. in Prepaid Expenses $19.0
    +
    (Incr) Decr. in Other Current Assets $0
    +
    Decr. (Incr) in payables $264.0
    +
    Decr. (Incr) in Other Current Liabilities $(30.4)
    +
    Decr. (Incr) in Other Working Capital $64.8
    =
    Changes In Working Capital $(225.1)

    Net Income = -1,190
    +
    Total Depreciation, Amortization & Depletion = +47.3
    +
    Other Non Cash Items = +200.7
    -
    Capital Expenditures = +105.2
    +
    Changes in Working Capital = -225.1 *-1 = 225.1
    (now since Buffett says that positive changes are negative and negative changes are positive we need to multiply all changes by -1 to get the opposite and the same goes for Special Income and Changes
    + Special Income and Changes = -2394.1 * -1 = 2394.1

    So -1190+47.3+200.7-105.2... =$1,572

    Now as for the old school value link I do not have access to the 2012 TTM data for Microsoft to compare it, but I will do 2011 for you using Y-Charts.

    Net Income = 23.15 Billion
    Total D&A&D =2.76 Billion
    Other Non Cash Items = 4.441 Billion
    Capital Expenditures = 2.355 Billion
    Changes in Working Capital = -3.003 Billion
    Special Income and Charges = 0

    23.15 + 2.766+4.441-2.355 +3.003 +0 = 31.005 billion

    So I came up with the exact same number he did in that example for 2011.
    I just subscribed to the Old School Value site to see what his current results were for 2010 and 2011 and they are exactly what they were in that page you linked, so if he was wrong on the TTM number then he would have gone back at some point and changed the way he calculates the 1000's or so stocks he must analyze. That post was years ago and I think the author was confused on that day as his $29,065 number was accurate if you follow the formula that he currently provides in how he calculates owner earnings. Everyone has a bad day at times and I am surprised that he did not go back and state that the $29,065 is actually correct as he needed to multiply -1024 *-1 and got $1024

    So

    Net income = $23,344
    D&A = $2,859
    Other non cash charges = $4,163
    Capex = $2,325
    Changes in working capital = ($1,024)
    MSFT TTM Owner Earnings =

    $23,344

    + $2,859

    + $4,163

    - $2,325

    + $1,024

    = $29,065

    So as you can see he was actually right if you follow his 2011 example.

    "Buffett says that If the business requires additional working capital to maintain its competitive position and unit volume, the increment also should be included in ( c)."

    So since C = Capital Expenditures and we subtract that then we need to subtract a minus number which requires us to multiply *-1 so it becomes positive and +1024 gets added and not subtracted so he was right in the first place and got temporarily confused as can happen to anyone.

    Well that's it for tonight and I did various tests comparing my interpretation of Owner Earnings with Old School Values interpretation and it was exact most of the time except that my interpretation includes Special Income or Charges and OSV does not.

    So our interpretation is different and to each his own but if you google Owner earnings you will find dozens of interpretations of what Buffett meant. Since Mr. Buffett has not gone public since 1986 on his equation it will remain a great debate, but I will stick with my version as it works for me. In the end you add a negative and subtract a positive. Under normal conditions you would just subtract a negative result and add a positive result but Mr. Buffett wants us to do the opposite and reward companies for a negative change in working capital and punish those with a positive result and thus we are required to multiply by -1.

    Mycroft
    Mar 23, 2015. 02:05 AM | Likes Like |Link to Comment
  • Gilead Sciences: An Analysis Using Warren Buffett's Owner-Earnings Equation [View article]
    I don't know how this will affect the stock, but this came on the wires yesterday and I just saw it.

    Gilead Warns After Hepatitis Patient on Heart Drug Dies

    http://yhoo.it/1xLOp6o
    Mar 22, 2015. 09:54 AM | Likes Like |Link to Comment
  • Gilead Sciences: An Analysis Using Warren Buffett's Owner-Earnings Equation [View article]
    Thanks MidtownEastNYC

    Sell Price Target at 30 times owner earnings = $254.37

    Mycroft
    Mar 19, 2015. 01:01 AM | 2 Likes Like |Link to Comment
  • Gilead Sciences: An Analysis Using Warren Buffett's Owner-Earnings Equation [View article]
    Will continue to hold it for a while I would imagine as I see the US Dollar staying strong and today was just a Yellen inspired drop. With the rest of the world dropping rates I can't see how the US Dollar will not keep going up.
    Mar 18, 2015. 09:36 PM | 1 Like Like |Link to Comment
  • Gilead Sciences: An Analysis Using Warren Buffett's Owner-Earnings Equation [View article]
    Thanks for sharing your wisdom and experience Dr. Fred ;-)

    Best Regards,

    Mycroft
    Mar 18, 2015. 05:51 PM | Likes Like |Link to Comment
  • Gilead Sciences: An Analysis Using Warren Buffett's Owner-Earnings Equation [View article]
    Very Nice Eric,

    Thanks,

    Mycroft
    Mar 18, 2015. 05:47 PM | Likes Like |Link to Comment
  • Gilead Sciences: An Analysis Using Warren Buffett's Owner-Earnings Equation [View article]
    That we will never know, it took me years to get this far in figuring out just a fraction of what he is doing. But if you go back and analyze his purchases from the 1960's, 70's, 80's, 90's and 2000's he is pretty consistent. His technology investment in IBM is 100% pure owner earnings and I will write my next article about it so everyone can see what he is seeing in IBM.

    Mycroft
    Mar 18, 2015. 02:00 PM | 1 Like Like |Link to Comment
  • Gilead Sciences: An Analysis Using Warren Buffett's Owner-Earnings Equation [View article]
    Hi Billy,

    I am going by what Warren Buffett actually wrote in 1986 "we can gain some insights about what may be called "owner earnings." These represent (A) reported earnings plus (B) depreciation, depletion, amortization, and certain other non-cash charges such as Company N's items"

    AND

    "Our owner-earnings equation" and that "we consider the owner earnings figure, not the GAAP figure, to be the relevant item for valuation purposes - both for investors in buying stocks and for managers in buying entire businesses."

    Who is the "WE" and "OUR" = Warren Buffett and Charlie Munger because at the time the statements were written only Warren Buffett and Charlie Munger made all the investment decisions for Berkshire Hathaway.

    Mycroft
    Mar 18, 2015. 12:20 PM | Likes Like |Link to Comment
  • Gilead Sciences: An Analysis Using Warren Buffett's Owner-Earnings Equation [View article]
    Thanks Dave,

    That sums it up quite well. Everyone should operate based on their expectations and risk tolerance.

    Thanks,

    Mycroft
    Mar 18, 2015. 11:06 AM | 1 Like Like |Link to Comment
  • Gilead Sciences: An Analysis Using Warren Buffett's Owner-Earnings Equation [View article]
    Actually I am long UUP and like to think of myself as a buy the correction instead of the crash investor. But every investor should expect a bull and bear market every 5 years or so and we are currently in year six of this bull market. I would love to be fully invested at all times but that is not possible when bonds are selling at near historic highs in principal and historic lows in yield. I simply take emotion out of the equation and buy when I can find something to buy and don't when I can not. I under perform toward the end of bull markets and tend to outperform after bear markets wipe away most investors gains.

    There are times to fish and times to mend the nets. I just use logic and common sense and refuse to pay the equivalent of $500,000 for a Toyota Prius for a stock just because everyone else is doing it, but I would rather pay below sticker. What I do is not easy and requires a ton of patience and the ability to shut out the crowd. Benjamin Graham lost his money twice, early in his career and was so conservative as a result of those losses that he went full bore Net Net Working Capital Investing after that. In 1987 at the ripe old age of 23, I lost big in one day when the market went down -23% and I was heavily margined. So experience is what man calls his mistakes as Plato said and I learned a ton of lessons on that day.

    Despite what people believe, markets do not always go up and from 1928-2009 I did a study where the markets went up 50.4% of the time and down 49.6% of the time. When markets fall they tend to fall heavy and if you can minimize losses then you don't need huge gains in order to outperform.

    Legendary Investor Irving Kahn who recently died at 109 was in the stock market since 1928 and this is how he operated:

    "Until the end of his life, Mr. Kahn kept about half of his assets in stocks, with the rest in cash. “If you command a lot of cash,” he said in 2012, “you can be wrong and still not have to worry.”

    This is basically what I do except when times like we are now in come around as I don't see how anyone can invest in a 30 year bond right now and lock in about 2.6% and pay historic highs in principal and get historic lows in yield. Its just a no win situation in my book.

    Mycroft
    Mar 18, 2015. 09:25 AM | 4 Likes Like |Link to Comment
  • Gilead Sciences: An Analysis Using Warren Buffett's Owner-Earnings Equation [View article]
    Hi Eric,

    Y-Charts has no official definition on their website but if you check with Google Finance you will see that they are the same results, therefore I have verified them to be correct.

    http://bit.ly/1Ct9KJ0

    Mycroft
    Mar 17, 2015. 07:06 PM | 1 Like Like |Link to Comment
  • Gilead Sciences: An Analysis Using Warren Buffett's Owner-Earnings Equation [View article]
    Surprisingly IBM keeps coming up with a similar number and probably explains why Buffett keeps buying more of it. With Y-Charts I was able to analyze 16,598 stocks using owner earnings but that list is reserved for my Clients. What I can tell you is that the problem is not owner earnings as most companies are doing ok. The problem is over valuation and that is understandable as most CEO's are using 95% of their companies cash flow to buy back stock "at any price" plus adding more debt on the books to do so. Coca-Cola just borrowed $billion in Euro's and is paying 1.16% interest rate on that money.

    For those interested Apple has the following results.

    Owner Earnings = $33.45 Billion
    Free Cash Flow = $49.90 Billion

    Owner Earnings to Free Cash Flow Ratio = 0.67

    Price to OE = 21.52
    Price to FCF = 14.43

    Those selling Apple may have noticed this as Management sold a ton of stock a while back.

    Mycroft
    Mar 17, 2015. 05:53 PM | 1 Like Like |Link to Comment
  • Gilead Sciences: An Analysis Using Warren Buffett's Owner-Earnings Equation [View article]
    We spent $trillions of dollars and then ended up exactly where we were in 2009 with 40% of the world in deflation.

    http://bit.ly/1CsTMP5

    Thanks Ben, Mario and Janet,

    Mycroft
    Mar 17, 2015. 05:40 PM | 2 Likes Like |Link to Comment
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