Money and Finance
- Price And Value...
From Capital Returns:It should never be forgotten that, in its most basic form, investing is always and everywhere about price and value. Price is what you pay, says the Sage of Omaha, and value is what you get. By this definition, every serious...
- Graham And Dodd Quote
From Security Analysis: Current Earnings Should Not Be the Primary Basis of Appraisal. The market level of common stocks is governed more by their current earnings than by their long-term average. This fact accounts in good part for the wide fluctuations...
- Limitations Of Book Value In Security Analyses
From The Aggressive Conservative Investor (written in 1979, which is good to keep in mind when reading the part with the oil example):To repeat, we do not believe in acquiring securities solely on the basis of the earnings record of a company...
- Graham And Dodd On Private Owner Valuation
From Security Analysis:The other application of the principle of investing in undervalued common stocks is directed at individual issues, which upon analysis appear to be worth substantially more than they are selling for. It is rare that a common stock...
- Whitman, Diz On Net-nets
From the book Modern Security Analysis: Understanding Wall Street Fundamentals:Our definition of net nets is taken from Graham and Dodd’s Security Analysis, but with a few twists. Graham and Dodd relied on a GAAP classified balance sheet to definite...
Money and Finance
GROWTH AT DIRT CHEAP PRICES (GADCP)
From Modern Security Analysis:
In GADCP, there is no emphasis on estimating future flows. Rather it is recognized that growth in common stock prices can come, and frequently does come, from sources other than corporate operations. Growth can come from judicious acquisitions (Capital Southwest Common); creating unrealized, and unrecorded, appreciation in asset values (Forest City Enterprise Common, Hopewell Holdings Ordinary); creating hidden assets in the form of increases in adjusted book value (Carlyle Group); having companies taken over by others at premium prices (Brookfield Asset Management); and possibly participating in corporate restructurings (Nabors Industries).
In forecasting future flows of revenues, earnings, or cash flows, no exclusivity in making these forecasts is given to the past earnings record under a GADCP analysis. It is recognized under GADCP that the quality of resources in a business and the quantity of resources in a business tend to be equally important, and for some companies are more important than the past record in making reasonably accurate forecasts of future flows. This is simply giving recognition to ROE and ROA as part of the forecasting process with Equity and Assets being balance sheet items.
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In GADCP, though, there is strong recognition given to the fact that most forecasts, no matter what techniques are used to make them, are going to prove to have been inaccurate. It is just too difficult to properly put into forecasts factors such as competitive forces, technological innovations, inexperienced managements, business cycles, access to capital markets and acts of God. Knowing of the inherent unreliability of its forecasts, we restrict our common stock investments to issues that enjoy very high-quality resources where we can acquire its interests at prices that represent a meaningful discount from the estimated quantity of resources that exist in a business.
GADCP is inherently long-term conscious. Indeed, securities markets tend to be efficient enough that a GADCP investor is unlikely to find issues at attractive prices unless the near-term outlook is poor to clouded.
Industry outlooks are as important for GADCP as they are for GARP. However, under GADCP, industry outlooks are based on independent analysis rather than conformity with a general consensus.
- Price And Value...
From Capital Returns:It should never be forgotten that, in its most basic form, investing is always and everywhere about price and value. Price is what you pay, says the Sage of Omaha, and value is what you get. By this definition, every serious...
- Graham And Dodd Quote
From Security Analysis: Current Earnings Should Not Be the Primary Basis of Appraisal. The market level of common stocks is governed more by their current earnings than by their long-term average. This fact accounts in good part for the wide fluctuations...
- Limitations Of Book Value In Security Analyses
From The Aggressive Conservative Investor (written in 1979, which is good to keep in mind when reading the part with the oil example):To repeat, we do not believe in acquiring securities solely on the basis of the earnings record of a company...
- Graham And Dodd On Private Owner Valuation
From Security Analysis:The other application of the principle of investing in undervalued common stocks is directed at individual issues, which upon analysis appear to be worth substantially more than they are selling for. It is rare that a common stock...
- Whitman, Diz On Net-nets
From the book Modern Security Analysis: Understanding Wall Street Fundamentals:Our definition of net nets is taken from Graham and Dodd’s Security Analysis, but with a few twists. Graham and Dodd relied on a GAAP classified balance sheet to definite...