F Wall Street Comments

On Calculating The Value Of A Business - Part I

Allen — Thu, 05 Nov 2009 00:47:36 -0600

Allen said:
Look fat the Johnson and Johnson (JNJ) Valuation here: http://www.fwallstreet.co...

Also here is a useful tool (loosely) based on Joe's methods by a blogger named Sanjay Shetty: http://indiainvestor.word...

On Calculating The Value Of A Business - Part I

Stephen Kutney — Wed, 04 Nov 2009 19:01:55 -0600

Stephen Kutney said:
Joe,

In your book on page 98 it says it says ..."download the spreadsheet at wwww.FWallStreet.com to help automate your investing."

I can't seem to find the spreadsheet. Do you still have it available?

Steve

On Profiting from Fear

Mark — Tue, 03 Nov 2009 04:19:47 -0600

Mark said:
If you have sold VOL, have you purchased it again now that it has dropped again? The net net of VOL reminds me of when you bought and SHRP. SHRP is now nearly bankrupt. How would you get your return on a net net such as SHRP if they do go bankrupt? I imagine if that is the case it would take months to years to get your investment back? How does it generally play out if it all goes south?

On Questions and Concepts in Value Investing

Gopinath — Mon, 02 Nov 2009 12:00:43 -0600

Gopinath said:
Joe,

Looks like Volt Information Sciences again for $7.8

On Why Ask Me? Ask Mohnish...Again

Stephen Kutney — Mon, 26 Oct 2009 20:26:16 -0600

Stephen Kutney said:
Can anyone tell me why Mahnish Pabrai sold Stamps.com? On the negative side the USPS business is failing. However, the numbers on this stock look so good in terms of Return on Equity, barriers to emtry. The growth is just slow.

Steve

On Free Cash Flow vs. Owner Earnings

BPal — Wed, 21 Oct 2009 09:04:04 -0600

BPal said:
Another question: in your book you talk about reviewing "middler" and "small fish" companies and state you like to review and update your intrinsic value on a quarterly basis for these types of companies. Do you use TTM figures to update your analysis or do you annualize quarterly data? Just curious how you take this quarterly data and make it comparable to your annual CROIC and Free Cash flow growth analysis.

On On Buying Harley Davidson

Jim — Mon, 19 Oct 2009 21:45:15 -0600

Jim said:
in my opinion, corporate culture is important in valuing. HOG ' culture need to be considered well.

On Free Cash Flow vs. Owner Earnings

BPal — Sun, 18 Oct 2009 17:19:04 -0600

BPal said:
Joe - I got your book and was reading it this weekend. So far very well written and informative! I do have two comments that I came across that I thought I'd point out in case there will be further editions printed. In the chapter on how to value a business, you mention that in accounting - the business would recognize the sale when the purchase order was signed, which might be a few months before delivery and a 6 months before the customer pays. This isn't exactly true, the accounting rules won't allow the business to recognize revenue until the product was delivered, not when the contract is signed.

Also, the next section covers expenses and talks about $10,000 in repairs to equipment that get capitalized on the balance sheet and amortized. This also isn't exactly correct. The accounting rules would not allow repairs to be capitalized. They are expensed as incurred. Only new purchases, construction costs (if the equipment is built in house), or items added to existing machinery that improves its value can be capitalized, not repairs. I think you were trying to highlight maintenance capex versus growth capex, but you got some of the exact accounting wrong.

On How to Value a Commodity

Dean — Tue, 13 Oct 2009 23:22:05 -0600

Dean said:
Terrible analysis. Using the green line introduces a serious look-ahead-bias.

On Profiting from Fear

buffetfan — Tue, 13 Oct 2009 15:37:42 -0600

buffetfan said:
Hey Joe,

Charlie Munger has said a number of times that in his previous life as an investor he thought if he could just get enough assets for the price he paid, things would turn out all right. He says he later learned the folly in this thinking and shifted his focus to competitive advantage and the strength of the underlying business.

What are your thoughts on this? I've been wrestling with this issue myself. DLIA is another stock that is selling cheaply on a quantitative basis, but its in a market that has fierce competition.

And to compound my confusion further, it seems many hardcore buffett/munger followers are ignoring buffett's advise about getting into great businesses at fair prices than fair businesses at great prices by going into stocks like DLIA.

thanks

On Calculating The Value Of A Business - Part II

Dustin Noe — Sat, 10 Oct 2009 14:39:05 -0600

Dustin Noe said:
What about owner earnings per share? It would factor in share buy backs and dilution. Would it be smart to use this in place of owner earnings or am I thinking wrong?

On Profiting from Fear

Saji — Tue, 06 Oct 2009 13:45:34 -0600

Saji said:
Hi Joe,
I have a question which would sound pretty basic. You mentioned "Though its earnings have fallen significantly and turned negative over the past two years, this hasn't caused a rapid cash burn". How do you calculate the cash burn rate, is it same as the owners earning?

On Profiting from Fear

Allen — Mon, 05 Oct 2009 00:21:40 -0600

Allen said:
Thanks, Jervis - the program is one part of the "checklist": it calculates a DCF of owner earnings based on the companies' financials.

On The Value Of A Moat

john — Sun, 04 Oct 2009 15:22:05 -0600

john said:
"Munger has his own idea of how the cost of capital should be measured. Buffett has explained that at Berkshire, the cost of capital is measured by the company's ability to create more than $1 of value for every $1 of earnings retained. "If we're keeping $1 bills that would be worth more in your hands than in ours, then we've failed to exceed our cost of capital," Buffett said."

WOW!

Thanks again for another insight.

That "retained earnings test" really shed light into it and made it much more simpler. I googled WACC as BPal suggested and got the concept but still its complexity somewhat eluded me.

(Thanks, still for that, BPal. I just can't get my head around on too much complexity (",). I'm still learning and reading every investment book I can get my hands on.)

On Profiting from Fear

Graham Jervis — Sun, 04 Oct 2009 14:55:12 -0600

Graham Jervis said:
Guy's,

there is also an excel program that uses Joe's investment process in terms of FCF, it was done by Sanjay Shetty of http://indiainvestor.word... this program has helped me alot along with Joe's book.

Check it out, hope it helps also. I am not sure if the excel program is endorsed by Joe, but they said it is based on the F Wall Street model

On Profiting from Fear

mathieu — Sun, 04 Oct 2009 02:08:04 -0600

mathieu said:
Noel- you don't need to analyze hundreds of companies a year. Joe has already told you how he narrows his field:

" I look in a lot of different places for stocks. 52-week low lists, below book value stocks, etc. This one (VOL) happened to be in the low price-to-book screen - along with a number of others I looked at."

You only need a few profitable investments so your first order of buisness should be to find out what kind of companies you want to invest in and use that criteria to narrow your field. When I find a stock, I watch the news feeds about that stock and often find other stocks that peak my interest. If you decide you don't have enough time to analyze the stocks you invest in, put your money elsewhere.

The "expertise" you'll need will come with experience. For example, if you decide you like to invest in net/nets you'll likely realize that they often trade under book value because they are in a deteriorating buisness where investors expect them to continue to operate so that the book value of the company decreases over time. Sometimes the book value is made up of inventory that loses value over time : a company selling blank vhs tapes would find their inventory had more value in the 80s than it does today. The easy part is the number crunching, evaluating the buisness model is the part that gets better with experience.

On Profiting from Fear

Allen — Sat, 03 Oct 2009 19:15:56 -0600

Allen said:
Noel - I've had the same questions. To me, the issue is basically: how can I get a hold of the client letters that explain Joe's purchases in real time while still compensating Joe appropriately? I wouldn't mind getting them a day after he has made his moves, because these would not be trading plays dependent on market timing. At the same time, I wouldn't feel obligated to purchase the stock if I didn't agree with the reasoning or felt uncomfortable with the investment (which would be seldom, because after all, the whole point is that I don't have the time or circle of competence to find these values).

More notes from Pabrai Funds Annual Meeting (via GuruFocus): http://www.gurufocus.com/...

On Profiting from Fear

Noel James — Sat, 03 Oct 2009 07:18:13 -0600

Noel James said:
Joe,

I have been a long-time follower of F Wall Street and loved the book as well. I want to invest intelligently, but I find that I don't have the time to analyze hundreds of companies every year, or the expertise to dive as deep in to a company as you do.

So a few questions:

1) Have you ever thought of starting a mutual fund for the "little guys" like me that don't quite meet your investment minimums?

2) If not, what are your thoughts on having an "automated" investment system where we can invest alongside you? Maybe a subscription service or like Greenblatt does?

Basically, do you have a way for us "little guys" to invest intelligently WITH you instead of with HELP from you?

On Noise vs. News: Fed Meetings and Rates

Shawn — Sat, 03 Oct 2009 02:16:18 -0600

Shawn said:
Hi, where can I find the spreadsheets or calculators to find intrinsic value, etc?

On Profiting from Fear

Graham Jervis — Thu, 01 Oct 2009 22:51:59 -0600

Graham Jervis said:
Look forward to your thoughts on them.