FAQ (frequently asked questions)
| How can
you charge so little?
We're doing the work anyway. It is a small thing to post it.
Where do I buy the stocks?
Do you include foreign stocks?
What are the formulae you use to calculate Owner Earnings, Intrinsic Value, and Momentum? We leave it to you to research the definitions and formula derivatives. Here are the values we assume:
Intrinsic Value is the Present Value of all the future cash flows:
The Average Treasury Bond Yield over 30 years is 8%. It is now 2.7%. Hagstrom Intrinsic Calculator calls for adding a risk factor to the bond rate based on the company's age. The Hagstrom W.B. Portfolio calls for a minimul of 10%. We use 10% for the 10 year first stage discount rate and 10% for the second stage. We use 5% for the second stage earnings growth rate.
Owner Earnings = Net Income + Depreciation - Capital Expenditures
Here is a problem we need to solve. We want to indicate growth of a company. But how do you measure growth?
1. We could simply use the figures for increase in sales and profit of the quarter compared to the previous year. But higher sales could mean selling at a loss and higher profit could mean a one-time sale of appreciated assets.
2. We could take a moving average increase of the sales and profit for the last 4 quarters. But this could mean a seasonal variation. Or last 12 quarters? Or use a weighted polynominal regression instead of a moving average?
3. Because we are interested in a stock price increase, we could use the increase in price over the last 4 or 12 quarters. instead of sales and profit. But this could change due to the economy, not the company.
Which indicator to use? Should we use a mixture of all three? What mix?We use the leassor of 1. and 2. to be conservative. For 2. we average the growth of each of the three periods, multiply 1 by the first, 2 by the second, and 3 by the third. 5% growth is light green, 10% middle green, and 15% dark green. Pink for negative. Please write us your thoughts
Buffett considers the quality of the management. How do you? We assume that you do not have this ability, but if the all the indicators are good, the management should also be good. Nevertheless, we suggest limiting your investment in any one company to 5% of your total capital, as Bob Brinker suggests, to cover the unknowns. Here is where you can do your own research.
Please send us some relevant questions.