Intelligent Investments: New Position- ARTX

Tuesday, January 9, 2007

New Position- ARTX

Well, I have a new position to report- ARTX- Arotech Inc. I have been watching this stock for some time and should have pulled the trigger back in November when the stock was trading at $1.65, but i procrastinated and at $3.50, think its still has significant upside. The stock trades at 74% of book value and has seen significant institutional buying over the past quarter. I put in an order for 1000 shares at 3.58 this morning when i went to work. I was away from my desk most of the day and when i returned, found that 400 shares had been filled and the stock was no trading in the $3.85 range. Thats a nice 8.4% return in a few hours. I just wish I got all my shares.

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Buffett's Value Formula (?)

Warren Buffett hasn't exactly published his formula for what he calls the intrinsic value of a company, but he has dropped a number of hints. He apparently multiplies estimated future earnings by a confidence margin between zero and a hundred percent (a bird in the bush being worth 0.5 birds in the hand, and all that; bush birds are the earnings you hope for, and hand birds are the earnings you're confident will materialize). He then compares these probable earnings with something he has total confidence in, by using a U.S. treasury yield as his discount rate. In calculator form it looks like this:

This calculator doesn't use fancier math than the original one did. Its advantage is that it forces you to be explicit about your earnings expectations. It also automatically provides you with a hard-headed investment strategy: always invest in government bonds, unless you can find something else you are confident will yield more cash.

One other hint that Buffett has dropped over the years is that he can estimate value in his head in about five seconds; so whatever he does he keeps it simple, slugger.