Bargain Bin's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.com/user/1041797/comments http://seekingalpha.com/article/682501/comments?source=feed#comment-6828051 6828051 Tue, 26 Jun 2012 21:53:19 -0400 http://seekingalpha.com/article/682501/comments?source=feed#comment-6827861 6827861 Tue, 26 Jun 2012 21:45:09 -0400 http://seekingalpha.com/article/653081/comments?source=feed#comment-6477551 6477551 Fri, 15 Jun 2012 18:46:37 -0400 http://seekingalpha.com/article/539221/comments?source=feed#comment-5081631 5081631 Thu, 03 May 2012 20:43:49 -0400 http://seekingalpha.com/article/489531/comments?source=feed#comment-4375681 4375681 Thu, 12 Apr 2012 17:20:33 -0400 http://seekingalpha.com/article/478691/comments?source=feed#comment-4247181 4247181 Mon, 09 Apr 2012 03:22:49 -0400 http://seekingalpha.com/article/483801/comments?source=feed#comment-4247131 4247131
I also agree that there may be a better way to incorporate the stock-based compensation. I'll have to think about the best way to do this.]]> Mon, 09 Apr 2012 03:18:03 -0400
I also agree that there may be a better way to incorporate the stock-based compensation. I'll have to think about the best way to do this.]]> http://seekingalpha.com/article/483141/comments?source=feed#comment-4238261 4238261 Sun, 08 Apr 2012 13:57:37 -0400 http://seekingalpha.com/article/462411/comments?source=feed#comment-4228731 4228731
The risk of the cash flow not occurring is based on the firm, but this is accounted for with the margin of safety. The riskier the cash flows the larger margin of safety.

You haven't pointed out any logical flaws in my reasoning in the article.
]]> Sat, 07 Apr 2012 18:38:43 -0400
The risk of the cash flow not occurring is based on the firm, but this is accounted for with the margin of safety. The riskier the cash flows the larger margin of safety.

You haven't pointed out any logical flaws in my reasoning in the article.
]]> http://seekingalpha.com/article/478691/comments?source=feed#comment-4207741 4207741 Fri, 06 Apr 2012 11:48:50 -0400 http://seekingalpha.com/article/478691/comments?source=feed#comment-4194611 4194611
I am not making the claim that management is not investing their cash flow efficiently. I made a point in the article saying that they are. All I'm saying is the the current market price is high relative to how much I think the company is worth based on how much cash they generate.


]]> Thu, 05 Apr 2012 22:06:24 -0400
I am not making the claim that management is not investing their cash flow efficiently. I made a point in the article saying that they are. All I'm saying is the the current market price is high relative to how much I think the company is worth based on how much cash they generate.


]]> http://seekingalpha.com/article/478691/comments?source=feed#comment-4193161 4193161 Thu, 05 Apr 2012 20:34:17 -0400 http://seekingalpha.com/article/478691/comments?source=feed#comment-4193051 4193051 Thu, 05 Apr 2012 20:30:04 -0400 http://seekingalpha.com/article/478691/comments?source=feed#comment-4193031 4193031
All I've done is calculate the future value of cash flows discounted back to today. The growth rates I used are clearly stated. I don't see what's confusing about it.]]> Thu, 05 Apr 2012 20:29:40 -0400
All I've done is calculate the future value of cash flows discounted back to today. The growth rates I used are clearly stated. I don't see what's confusing about it.]]> http://seekingalpha.com/article/478691/comments?source=feed#comment-4192841 4192841 Thu, 05 Apr 2012 20:19:37 -0400 http://seekingalpha.com/article/478691/comments?source=feed#comment-4192781 4192781 Thu, 05 Apr 2012 20:17:22 -0400 http://seekingalpha.com/article/464511/comments?source=feed#comment-3963291 3963291 2: $9,548
3: $10,093
4: $10,653
5: $11,228

Is it possible you didn't subtract off the net debt?]]> Thu, 29 Mar 2012 19:34:03 -0400 2: $9,548
3: $10,093
4: $10,653
5: $11,228

Is it possible you didn't subtract off the net debt?]]> http://seekingalpha.com/article/464511/comments?source=feed#comment-3948571 3948571 Thu, 29 Mar 2012 12:39:57 -0400 http://seekingalpha.com/article/462411/comments?source=feed#comment-3924351 3924351
If you were offered a private company that generates $1 million per year in cash flow, the amount you would be willing to pay for that company depends on the rate of return that you require. It's no different for a publicly traded company. There is no "correct" discount rate. If I required a 10% rate of return I would pay at most $10 million for this hypothetical company. I would then apply a margin of safety to account for the risk of the cash flows not occurring, and that would give me the highest price I'd be willing to pay to achieve my return.

You can calculate whatever you want from beta or CAPM or whatever and use that as a discount rate. You could also count the number of fingers that you have and use that as a discount rate. Both are equally valid discount rates. Neither one is "more correct" than the other. The danger is not understanding what a discount rate actually is. ]]> Wed, 28 Mar 2012 18:26:40 -0400
If you were offered a private company that generates $1 million per year in cash flow, the amount you would be willing to pay for that company depends on the rate of return that you require. It's no different for a publicly traded company. There is no "correct" discount rate. If I required a 10% rate of return I would pay at most $10 million for this hypothetical company. I would then apply a margin of safety to account for the risk of the cash flows not occurring, and that would give me the highest price I'd be willing to pay to achieve my return.

You can calculate whatever you want from beta or CAPM or whatever and use that as a discount rate. You could also count the number of fingers that you have and use that as a discount rate. Both are equally valid discount rates. Neither one is "more correct" than the other. The danger is not understanding what a discount rate actually is. ]]> http://seekingalpha.com/article/462411/comments?source=feed#comment-3906691 3906691 Wed, 28 Mar 2012 11:06:54 -0400 http://seekingalpha.com/article/456621/comments?source=feed#comment-3876011 3876011
The problem with the P/E ratio is that EPS can easily be manipulated. You can have a company with a positive EPS that grows every quarter for years that is actually losing money because cash flows are negative. Earnings can go up because some asset that the company bought and paid for 10 years ago finished depreciating. That doesn't change the profitability. ]]> Tue, 27 Mar 2012 13:34:58 -0400
The problem with the P/E ratio is that EPS can easily be manipulated. You can have a company with a positive EPS that grows every quarter for years that is actually losing money because cash flows are negative. Earnings can go up because some asset that the company bought and paid for 10 years ago finished depreciating. That doesn't change the profitability. ]]> http://seekingalpha.com/article/456621/comments?source=feed#comment-3874921 3874921
Remember when people bought houses at high prices based on how everyone else was valuing them? That didn't turn out so well. ]]> Tue, 27 Mar 2012 13:05:05 -0400
Remember when people bought houses at high prices based on how everyone else was valuing them? That didn't turn out so well. ]]> http://seekingalpha.com/article/458551/comments?source=feed#comment-3857981 3857981 Engaging conversation
Victory for all]]> Tue, 27 Mar 2012 02:37:36 -0400 Engaging conversation
Victory for all]]> http://seekingalpha.com/article/456621/comments?source=feed#comment-3839431 3839431
Another problem with WACC: Imagine two identical companies, except one has half of it's capital structure as debt and the other is all equity. The company with more debt would be given a lower discount rate according to WACC, since the cost of debt is typically lower than the cost of equity. I would argue that the higher debt company carries more risk.

I base the growth rate on the return on invested capital, and reduce it each year to a low long term growth rate since the further you project, the more uncertain you are. I think it is pointless to try to come up with more "exact" numbers based on competition, etc. for a company like Corning. I assume that Corning will continue to generate return on investment generally in line with the past. They've been a company for a very long time and have a long history of doing so. So it seems reasonable to assume that this will continue. Obviously, for a small company with short history this would be more dubious. And this is why Margin of Safety is important. It allows you to be occasionally be wrong and still achieve your desired rate of return. ]]> Mon, 26 Mar 2012 14:18:46 -0400
Another problem with WACC: Imagine two identical companies, except one has half of it's capital structure as debt and the other is all equity. The company with more debt would be given a lower discount rate according to WACC, since the cost of debt is typically lower than the cost of equity. I would argue that the higher debt company carries more risk.

I base the growth rate on the return on invested capital, and reduce it each year to a low long term growth rate since the further you project, the more uncertain you are. I think it is pointless to try to come up with more "exact" numbers based on competition, etc. for a company like Corning. I assume that Corning will continue to generate return on investment generally in line with the past. They've been a company for a very long time and have a long history of doing so. So it seems reasonable to assume that this will continue. Obviously, for a small company with short history this would be more dubious. And this is why Margin of Safety is important. It allows you to be occasionally be wrong and still achieve your desired rate of return. ]]> http://seekingalpha.com/article/450671/comments?source=feed#comment-3755151 3755151
If I only require a market rate of return, why not just invest in an index fund? Why bother with individual stocks? My goal is to find stocks that are almost certainly significantly undervalued. I don't need to find 100 stocks that meet my requirements. Sometimes there will be none. But by buying only at a large discount you eliminate much of the risk. Cisco is much less risky an investment at $18 than at $25. I don't expect the market P/E multiple to increase. What I expect is that in the long term stocks fluctuate around their fair value. What that fair value actually is is debatable. But I try to be consistent with my valuation method. Basing the value of future cash flows on past performance of the stock and capital structure, as many people do, makes no sense. If I told you "I'll give you $1000 a year for 10 years", how much would you pay for that cash flow? It depends on what you require as a rate of return. You then apply a margin of safety to account for the risk of me not paying you.

]]> Fri, 23 Mar 2012 10:57:58 -0400
If I only require a market rate of return, why not just invest in an index fund? Why bother with individual stocks? My goal is to find stocks that are almost certainly significantly undervalued. I don't need to find 100 stocks that meet my requirements. Sometimes there will be none. But by buying only at a large discount you eliminate much of the risk. Cisco is much less risky an investment at $18 than at $25. I don't expect the market P/E multiple to increase. What I expect is that in the long term stocks fluctuate around their fair value. What that fair value actually is is debatable. But I try to be consistent with my valuation method. Basing the value of future cash flows on past performance of the stock and capital structure, as many people do, makes no sense. If I told you "I'll give you $1000 a year for 10 years", how much would you pay for that cash flow? It depends on what you require as a rate of return. You then apply a margin of safety to account for the risk of me not paying you.

]]> http://seekingalpha.com/article/450671/comments?source=feed#comment-3744201 3744201

There have been many studies criticizing CAPM and showing that beta is a very poor indicator of future risk and returns. Here's an article with references that points out it's shortcomings:

http://bit.ly/GIogLe

The theory is built on assumptions that are completely ridiculous. I use 15% because that is my required rate of return on future cashflows.

And here are some quotes regarding CAPM and beta from Warren Buffet and others:

http://bit.ly/GOHHWt
]]> Fri, 23 Mar 2012 00:08:23 -0400

There have been many studies criticizing CAPM and showing that beta is a very poor indicator of future risk and returns. Here's an article with references that points out it's shortcomings:

http://bit.ly/GIogLe

The theory is built on assumptions that are completely ridiculous. I use 15% because that is my required rate of return on future cashflows.

And here are some quotes regarding CAPM and beta from Warren Buffet and others:

http://bit.ly/GOHHWt
]]> http://seekingalpha.com/article/450671/comments?source=feed#comment-3737461 3737461 Thu, 22 Mar 2012 18:57:09 -0400 http://seekingalpha.com/article/450671/comments?source=feed#comment-3737411 3737411
Using beta to represent risk for something that is not a derivative doesn't make any sense. Volatility of a stock price has nothing to do with the value of a company. I treat the discount rate as a required rate of return and adjust for risk with a margin of safety. ]]> Thu, 22 Mar 2012 18:53:47 -0400
Using beta to represent risk for something that is not a derivative doesn't make any sense. Volatility of a stock price has nothing to do with the value of a company. I treat the discount rate as a required rate of return and adjust for risk with a margin of safety. ]]> http://seekingalpha.com/article/450791/comments?source=feed#comment-3728591 3728591 Thu, 22 Mar 2012 15:11:19 -0400 http://seekingalpha.com/article/447141/comments?source=feed#comment-3666111 3666111 Tue, 20 Mar 2012 21:29:01 -0400