More Holiday Reading Links: Moats, Floats, Company Analysis, and Others

Gannon and Hoang On Investing-Unrepeatable Moats.

Csinvesting-A Reader’s Question On Niche Vs Moat and Greenwald Class Notes.  Make sure to read all the way to the comments as there is a very good discussion going on about moats there.

Fundoo Professor-Presentation on Moats and Floats.  Decided to post this again because it is so important.  Also read the comments section.

Fundoo Professor-All About Floats: Parts 1, 2, and 3.  Make sure to read the comments section as the discussion there goes quite deep into the inner workings of float.

Gannon and Hoang On Investing-Capital Allocation Discount.

ValueInvestingBlog.net-Audika Group: Can You Hear The Call Of Value.

Whopper Investments-$LAKE Update, The Bottom Has Fallen Out.

25iq.com-Charlie Munger On Moats (First Of The Four Essential Filters). Extremely valuable read for people learning about moats as I am right now.  Also contains a bunch of links to other Munger and moat information.

Gopal Gantayat-Evolving Competitive Advantages.

Psychology Today-Why Too Much Data Disables Your Decision Making.

Oddball Stocks-Thinking Like A Bond Investor.

Market Folly-Charlie Munger On The Psychology of Human Misjudgement.

Zenpenny-Here Is To The Downfall Of Micro Managing Portfolio Positions.

SMB Training-What A Star Portfolio Manager Can Teach Us About Improvement.

Mini Review of Valuation: Measuring and Managing the Value of Companies and biases

My mini review

Let me first be up front with you about my bias against DCF (discounted cash flow) valuation, which is what this book overwhelmingly talks about.

There are several reasons why DCF valuation does not make sense to me from a practical perspective on a way to value companies:

  • 1) If you go through all the work it takes to do a proper DCF valuation, but you are off by 1% on one important number, your valuation could be off by more than 10%.  There are so many inputs in a DCF valuation that the margin for error seems astronomical to me.
  • 2) Lets say you are very good at DCF valuations and get all of the numbers correct, you still have to forecast out 5-10 years in the valuation.  If Warren Buffett, who is a certifiable genius, cannot forecast months or even a year in advance, why should I think that I can forecast out 5-10 years?
  • 3) Lastly, why do you have to do something as complex and time consuming as DCF valuation when you could just do relative/multiple valuations and come to pretty much the same conclusions in a fraction of the time.  Time you could be using to think about the how the company and its competitors operate, and the strategy the company should use going forward, or finding another company to evaluate.

I am interested to see what some other people think who might be keen on DCF valuations, feel free to write your thoughts or rebuttal.

On to the review

The first 200 pages, out of 860 plus, I read completely, learned some things, and was very excited for the rest of the book.

Part 2 on to the end of the book is unfortunately techniques and concepts I have learned in various other places such as Aswath Damodaran’s free online valuation course, Bruce Greenwald’s books, and other various books I have read.

The book is not bad by any means I just did not want to go over DCF valuation techniques again after having just finished up Damodaran’s class that was almost exclusively going over those same techniques.

Valuation is mainly a book that talks about how to do DCF valuation and how to master the techniques that it entails.  Throwing in some strategy, and some things to look for like high ROIC.  There was one major thing in the book that bothered me though while I scanned through the remaining 650 plus pages.

  • He talks about how markets are mostly efficient, except in rare cases, whose opportunities only last for a short time.  If he thinks markets are mostly efficient, except in rare cases, which only last for a short time, why does he need to value companies at all, shouldn’t they already be properly valued?

Individually I would recommend:

  • Learning how to do DCF valuations: Aswath Damodaran’s free online valuation course.  I took his free course on Coursekit, which is now Lore here.  I learned an enormous amount about how to think about doing valuations and things I need to watch for that I could apply to relative valuation.  Here is a different link to his free course on Academic Earth.
  • Thinking about strategy: Bruce Grenwald’s Competition Demystified..
  • Learning why ROIC is important: Various books, some of which I list here.

Collectively I would recommend Valuation to people who are just starting to learn about valuation techniques, how to do them properly with a little bit of strategy thrown in, and/or people who want to learn DCF valuation specifically.  Especially if you download the free book from Csinvesting’s site that I wrote about here.

Now it is time for me to get back to valuing and evaluating companies.  My next post will be showing you some of the new valuation techniques I have been working on.

Vodafone dividend from Verizon, Microsoft buying Activision, and what I am doing now

Vodafone and the possible dividend from Verizon

This is a fantastic article about the potential special dividend Vodafone might be getting from Verizon.  The article talks about the relationship between the two companies, how big the dividend could be, whether it could become a regular thing, and whether there could be a possible Vodafone/Verizon merger or if Verizon could buy out Vodafone’s 45% stake in them.

What if Microsoft Bought Activision Blizzard?

This article talks about some scenarios that could possibly happen in the video game industry if Microsoft were to buy Activision Blizzard.

What I am doing now

I am currently reading Valuation: Measuring and Managing the Value of Companies, one of the free books that Csinvesting put on his site, so it will be a few more days until I will be putting up some more valuations.

I have also been learning and applying some of the different valuation techniques from the Manual of Ideas to some of the stocks I have already written about, and will post some of them after I finish reading Valuation.

I can’t wait to start diving into some more annual reports and finding another company to evaluate, as this book is so far kind of a let down. Valuation is a good book so far, about a quarter of the way through it, but a lot of the stuff I have already learned from Damodaran’s free valuation course, Bruce Greenwald’s books, and from various other books I have read.  So far up to where I have read in the book, it is almost exclusively talking about how to do DCF valuations, which I don’t do, with a little bit of strategy mixed in, and how companies with high ROIC are better investments than lower ROIC companies.

Until next time.

Treasure Trove of free books

I mention csinvesting.wordpress.com quite a bit on this site and for good reason.  Not only does it have amazing analysis and teaches you how to think better about companies and investments.  He offers through his free Value Vault, books, videos, lectures, articles, etc from some of the greatest investors in the world.

Today John put up on his site 32 books/writings on his site that got donated to him from an anonymous contributor, all of which can be downloaded for free.

Some of the included books and writings are investment classics such as The Intelligent Investor, Security Analysis: 1940 edition, and Margin of Safety.

The books are in the categories of: Business Strategy, Investment and analysis, Valuation, Accounting, and Economic history.

Thank you so much John and the anonymous contributor, I am now going to have to upgrade my Dropbox account here very soon.

Here are the links.

Part 1

Part 2

Part 3

Part 4

Template for future analysis of companies, latest article published.

The analysis and valuation series on Dole, Chiquita, Fresh Del Monte, and my conclusions, which is the finale in the series that just got published, is exactly how I am planning on going about my analysis in the future.  I am light years ahead of where I was when I first started, but I am still light years from where I need to be.  The main thing I need to keep working on is my ability to judge competitive advantages.

I am now going to be finishing up Competition Demystified, which will help me judge competitive advantages better, and I will be searching for my next company to study.

What I am learning, and need to learn to become better in the short term.

Over the past several days I have been reading annual and quarterly reports for a couple companies I am researching.  Tonight I am going to start reading some of the competitors annuals, and hopefully when I am done I will have enough information to value the companies and see where that takes us.

With the information in my previous post, and the experience I gained from that, I have gotten pretty good at spotting the bad companies and have been obviously staying away from them.  Too bad that is the easy part of investing.  Now I need to get a lot better at deciphering which companies are the good ones and which ones have the potential to become great, the ones with a so called Franchise.  I also need to get better at finding companies with legitimate, sustainable competitive advantages.

So for Father’s Day I got Bruce Greenwald’s Competition Demystified which will hopefully help me learn a lot in those two departments.

Those are my plans for the next week or so, now lets see how that plays out.