I had a question, do you still use Greenwalds Earnings Power Value and Growth return method to value this stock similar to the free sample issue?
I've been trying to learn Greenwalds methods (honestly, it's not been too easy and taken a few re-reads just to understand a bit.)
I've been able to do EPV, but the organic growth portion and active reinvestment portion don't make sense to me. Do you have any resources I could use? I also don't try to re-create balance sheets, just don't feel confident in getting an accurate reproduction value.
I hope to subscribe in the future, to get into your subscriber talks and read your book soon enough :)
Have you read the 2nd edition of Value Investing: From Graham to Buffett and Beyond? I'd recommend you start there.
I should do another post simplifying my thoughts. The gist of it is this: organic growth "just happens" because of growth in the economy, population, etc. It's the rising tide lifts all boats effect. But, as with all growth it does require capital, so you need to know the capital intensity of the business. With active reinvestment it's similar in that it's tied to capital but less "free", if that makes any sense. Capital that otherwise could be distributed is put back into the business generating a real return. If the return on capital exceeds your discount rate then the reinvestment creates value. Otherwise, the business would be better off distributing it.
Yeah i've read the book, I've had to re-read it a few times because it is kind of hard for a beginner like me to take in (I only learned to read financial statements around two months ago). I found the earnings power value to make a lot of sense though, and that's mostly how I calculate intrinsic value along with Warrens concept of "owners earnings" which are pretty similar concepts (I think).
It'd be awesome if you did a valuation guide post, when I was starting out there were all these great investors telling me to get the value of a stock, but barely any one said how to get the value of the stock!. And I don't like DCF's which is what most people suggest because most of that value comes from the terminal growth.
I see, yes that makes a lot of sense now. So basically it could be possible to go with GDP growth for organic growth or the industry average growth, however for active reinvestment I don't really know how to estimate how much of the retained earnings will transition into a real return (Do i just use the ROE metric?)
Also, I picked up your book recently and it's been a great read, thank you for writing it. I'll be buying my younger brother a hardcover copy too.
All the best (PS: Would really love another valuation guide/post!)
Hi Adam, hope you're doing well.
I had a question, do you still use Greenwalds Earnings Power Value and Growth return method to value this stock similar to the free sample issue?
I've been trying to learn Greenwalds methods (honestly, it's not been too easy and taken a few re-reads just to understand a bit.)
I've been able to do EPV, but the organic growth portion and active reinvestment portion don't make sense to me. Do you have any resources I could use? I also don't try to re-create balance sheets, just don't feel confident in getting an accurate reproduction value.
I hope to subscribe in the future, to get into your subscriber talks and read your book soon enough :)
Have you read the 2nd edition of Value Investing: From Graham to Buffett and Beyond? I'd recommend you start there.
I should do another post simplifying my thoughts. The gist of it is this: organic growth "just happens" because of growth in the economy, population, etc. It's the rising tide lifts all boats effect. But, as with all growth it does require capital, so you need to know the capital intensity of the business. With active reinvestment it's similar in that it's tied to capital but less "free", if that makes any sense. Capital that otherwise could be distributed is put back into the business generating a real return. If the return on capital exceeds your discount rate then the reinvestment creates value. Otherwise, the business would be better off distributing it.
Hey Adam, thanks for the reply.
Yeah i've read the book, I've had to re-read it a few times because it is kind of hard for a beginner like me to take in (I only learned to read financial statements around two months ago). I found the earnings power value to make a lot of sense though, and that's mostly how I calculate intrinsic value along with Warrens concept of "owners earnings" which are pretty similar concepts (I think).
It'd be awesome if you did a valuation guide post, when I was starting out there were all these great investors telling me to get the value of a stock, but barely any one said how to get the value of the stock!. And I don't like DCF's which is what most people suggest because most of that value comes from the terminal growth.
I see, yes that makes a lot of sense now. So basically it could be possible to go with GDP growth for organic growth or the industry average growth, however for active reinvestment I don't really know how to estimate how much of the retained earnings will transition into a real return (Do i just use the ROE metric?)
Also, I picked up your book recently and it's been a great read, thank you for writing it. I'll be buying my younger brother a hardcover copy too.
All the best (PS: Would really love another valuation guide/post!)