3 'Bend It Like Buffett' Stocks (Plus 25 More) [View article]
We often wonder what individual investors think when Warren Buffett pays nearly 20 times for a ketchup company, Heinz. Do individual investors think:
a) I need to buy a company for a ridiculous premium that has been around for decades that makes an every-day item because that's what Buffett does.
or
b) I think Buffett's a little late to the game here. I think he's more in capital preservation mode than anything else. I'm not sure his strategy is for investors looking for long-term outperformance.
It'd be very interesting to see how most individual investors think about this.
That's a great question. Firms break out historical performance in the regulatory filings once they are spun off. Pasted below is a link to PSX's 10-K:
Our future forecasts are based on how we think the independent business will operate. Again, great question.
Assessing historical trends and making intelligent forecasts of future operating performance to arrive at an intrinsic value estimate are core duties of an equity analyst.
The 12 Most Important Steps To Understand The Stock Market [View article]
Hi PinnacleX,
We offer investors a Best Ideas portfolio and a Dividend Growth portfolio (embedded in their respective monthly newsletters). We offer the most bang for the buck, as our value-delivered-to-member versus price-paid ratio is the very best out there, in our view. If you'd like to give us a try, here is some information about our service:
The 12 Most Important Steps To Understand The Stock Market [View article]
Hi Shane,
There are a number of reasons why we didn't state the data in your response. And we very much appreciate you finding it and sharing it with the investment community.
I think Brian's point is that stock prices are based on expectations of future earnings and cash flow, whether it be a wide moat stock, a narrow moat stock, or a no moat stock.
Based on the moat data provided by the research firm, there could arguably be a degree of randomness if wide moat, 5-star stocks outperform the worst buckets by only 1 or 2 percentage points over a 10 year period. For example, a bucket could potentially gain a percentage point or two relative to another bucket in a very short and perhaps immaterial amount of time. Can we conclude that wide-moat, 5 star stocks are the way to go, or is there another key driver out there that leads to outperformance?
In any case, the data clearly shows that wide moat stocks underperform narrow moat stocks, and no moat stocks outperform narrow moat stocks (during the time period). There is a graph (not a table) in the article that reveals this.
We agree with you 100%. We think this is a valid point open to honest disclosure, and investors should be made aware of this data and the various interpretations of it.
Please do give us a try. We certainly would appreciate it.
Lorillard's Shares Are Not Exactly Cheap [View article]
Thank you. Lorillard has almost converged to our estimate of its intrinsic value. However, as we stated before, we view valuation as a range and not a specific point estimate. We tend to view a company as undervalued if its fair value falls below the low end of our fair value range (not fair value estimate).
The 12 Most Important Steps To Understand The Stock Market [View article]
Hi msapp,
There are two links in the above article that send you to the relevant places where the firm discloses the moat performance. Behind the link is a graph that shows the underperformance of wide moat stocks over time.
To get Brian's opinion, please do send him an email.
The 12 Most Important Steps To Understand The Stock Market [View article]
Hi MahlerLover,
We may have to divert to Brian on this topic, but a business is valued on its entire enterprise future free cash flow (FCFF) stream.
The key item with respect to understanding this is that the enterprise free cash that we use can all be distributed to shareholders (excluding cash flow related to the interest adjustment). The enterprise free cash flow that we use is already AFTER CONSIDERING REINVESTED CASH IN THE FIRM. It is already after future maintenance/growth capex.
So, therefore the firm's enterprise cash flow (excluding cash flow related to the interest adjustment) is retained cash (which builds up on the balance sheet), dividends paid, and/or cash used for share buybacks. A business is not worth more or less on the basis of how much of this cash it pays as dividends, as long as the dividend does not impede its reinvestment in other value-generating projects. Dividends paid can actually be value-destructive if they are so large to impede future positive ROI projects. And as Brian states, a business' value is adjusted down by the amount of the dividend, which we explain below:
A stock is worth 1) the sum of the company's future discounted enterprise free cash flow, 2) less its net balance sheet impact, 3) less other adjustments (pension, OPEB, etc.) 4) divided by shares outstanding. Dividends are paid with cash on the balance sheet, so net cash is reduced, reducing the value of the entire enterprise.
I'm sure that if you contacted Brian at his work email, he'd more than happily walk you through this. Valuentum may be scheduling a seminar on valuation in general soon, too.
The 12 Most Important Steps To Understand The Stock Market [View article]
Hi Shane,
Can you please share with the group how much the outperformance of wide moat, 5-star stocks is to 1) no-moat, 5-star stocks and 2) no-moat, 1-star stocks over the time period. And whether no-moat, 1-star stocks have also outperformed the market benchmark, too. Thank you so much for your contribution!
The 12 Most Important Steps To Understand The Stock Market [View article]
The key takeway here is that companies can beat earnings estimates in the quarter and issue downside forward guidance relative to analyst expectations. In almost every instance, the shares will sell off. This is because "earnings beats and misses offer very little value to the investor. Stock prices are determined by future expectations of earnings and cash flow." The future will always trump the past. What has happened in any reported quarter is already history. Only if it informs the future will it have any value.
The 12 Most Important Steps To Understand The Stock Market [View article]
Hi disallusioned,
Thank you for your comment. Just to be clear, Brian is not stating that the DCF is the only way to pick stocks. I believe he favors the Valuentum way of picking stocks. Valuentum makes available fully-populated DCF valuation models for those that are interested in learning. Pasted below is more information on the Valuentum style of investing:
How To Calculate Rayonier's Intrinsic Value [View article]
Those are some excellent points. We will consider them in our next update. Very well said.
Kind regards,
The Valuentum Team
http://www.valuentum.com
Why We're Staying Far Away From First Solar [View article]
The Valuentum Team
http://www.valuentum.com
3 'Bend It Like Buffett' Stocks (Plus 25 More) [View article]
a) I need to buy a company for a ridiculous premium that has been around for decades that makes an every-day item because that's what Buffett does.
or
b) I think Buffett's a little late to the game here. I think he's more in capital preservation mode than anything else. I'm not sure his strategy is for investors looking for long-term outperformance.
It'd be very interesting to see how most individual investors think about this.
Thanks for the article!
The Valuentum Team
Is Phillips 66 Headed For A Fall? [View article]
That's a great question. Firms break out historical performance in the regulatory filings once they are spun off. Pasted below is a link to PSX's 10-K:
http://bit.ly/YBtcLu
Our future forecasts are based on how we think the independent business will operate. Again, great question.
Assessing historical trends and making intelligent forecasts of future operating performance to arrive at an intrinsic value estimate are core duties of an equity analyst.
Kind regards,
The Valuentum Team
http://www.valuentum.com
The 12 Most Important Steps To Understand The Stock Market [View article]
We offer investors a Best Ideas portfolio and a Dividend Growth portfolio (embedded in their respective monthly newsletters). We offer the most bang for the buck, as our value-delivered-to-member versus price-paid ratio is the very best out there, in our view. If you'd like to give us a try, here is some information about our service:
http://bit.ly/MtrQwH
Thank you for reading.
The Valuentum Team
http://www.valuentum.com
The 12 Most Important Steps To Understand The Stock Market [View article]
There are a number of reasons why we didn't state the data in your response. And we very much appreciate you finding it and sharing it with the investment community.
I think Brian's point is that stock prices are based on expectations of future earnings and cash flow, whether it be a wide moat stock, a narrow moat stock, or a no moat stock.
Based on the moat data provided by the research firm, there could arguably be a degree of randomness if wide moat, 5-star stocks outperform the worst buckets by only 1 or 2 percentage points over a 10 year period. For example, a bucket could potentially gain a percentage point or two relative to another bucket in a very short and perhaps immaterial amount of time. Can we conclude that wide-moat, 5 star stocks are the way to go, or is there another key driver out there that leads to outperformance?
In any case, the data clearly shows that wide moat stocks underperform narrow moat stocks, and no moat stocks outperform narrow moat stocks (during the time period). There is a graph (not a table) in the article that reveals this.
We agree with you 100%. We think this is a valid point open to honest disclosure, and investors should be made aware of this data and the various interpretations of it.
Please do give us a try. We certainly would appreciate it.
Kind regards,
The Valuentum Team
Lorillard's Shares Are Not Exactly Cheap [View article]
Kind regards,
The Valuentum Team
http://www.valuentum.com
The 12 Most Important Steps To Understand The Stock Market [View article]
There are two links in the above article that send you to the relevant places where the firm discloses the moat performance. Behind the link is a graph that shows the underperformance of wide moat stocks over time.
To get Brian's opinion, please do send him an email.
Thank you for reading!
The Valuentum Team
The 12 Most Important Steps To Understand The Stock Market [View article]
We may have to divert to Brian on this topic, but a business is valued on its entire enterprise future free cash flow (FCFF) stream.
The key item with respect to understanding this is that the enterprise free cash that we use can all be distributed to shareholders (excluding cash flow related to the interest adjustment). The enterprise free cash flow that we use is already AFTER CONSIDERING REINVESTED CASH IN THE FIRM. It is already after future maintenance/growth capex.
So, therefore the firm's enterprise cash flow (excluding cash flow related to the interest adjustment) is retained cash (which builds up on the balance sheet), dividends paid, and/or cash used for share buybacks. A business is not worth more or less on the basis of how much of this cash it pays as dividends, as long as the dividend does not impede its reinvestment in other value-generating projects. Dividends paid can actually be value-destructive if they are so large to impede future positive ROI projects. And as Brian states, a business' value is adjusted down by the amount of the dividend, which we explain below:
A stock is worth 1) the sum of the company's future discounted enterprise free cash flow, 2) less its net balance sheet impact, 3) less other adjustments (pension, OPEB, etc.) 4) divided by shares outstanding. Dividends are paid with cash on the balance sheet, so net cash is reduced, reducing the value of the entire enterprise.
I'm sure that if you contacted Brian at his work email, he'd more than happily walk you through this. Valuentum may be scheduling a seminar on valuation in general soon, too.
Thanks for reading!
The Valuentum Team
The 12 Most Important Steps To Understand The Stock Market [View article]
Can you please share with the group how much the outperformance of wide moat, 5-star stocks is to 1) no-moat, 5-star stocks and 2) no-moat, 1-star stocks over the time period. And whether no-moat, 1-star stocks have also outperformed the market benchmark, too. Thank you so much for your contribution!
Kind regards,
The Valuentum Team
The 12 Most Important Steps To Understand The Stock Market [View article]
Thanks for reading!
The Valuentum Team
http://www.valuentum.com
The 12 Most Important Steps To Understand The Stock Market [View article]
Kind regards,
The Valuentum Team
The 12 Most Important Steps To Understand The Stock Market [View article]
Thank you for your comment. Just to be clear, Brian is not stating that the DCF is the only way to pick stocks. I believe he favors the Valuentum way of picking stocks. Valuentum makes available fully-populated DCF valuation models for those that are interested in learning. Pasted below is more information on the Valuentum style of investing:
http://bit.ly/viu9MH
Thank you for reading.
Kind regards,
The Valuentum Team
3M Trading Above Intrinsic Value (But Not By Much) [View article]
Thank you for your interest. We certainly appreciate it! Pasted below is a link to our methodology:
http://bit.ly/viu9MH
If you have any additional questions or need more information, please contact our company.
Thanks,
The Valuentum Team
Why We're Huge Fans Of GE [View article]
Kind regards,
The Valuentum Team