Intelligent Investments: Weekly Summary

Friday, November 24, 2006

Weekly Summary

For the week, the portfolio gained a respectable 0.59% ($1,423.14) outperforming the S&P 500 and Russell 1000 indexes. My stock picks did not perform as well as my mutual funds which were helped by rising energy prices- Fidelity Energy and Fidelity Leveraged Company each returned over 1.2% for the week. These portfolio's weathered the oil price drop fairly well.

Coach continues to climb with every news release toting luxury goods during the holiday season. Bud and Genentech are trading sideways. Bud isn't going to spike anytime soon but I feel as they expand their offering of products outside of alcoholic beverages, more institutional buying will take place pushing the stock up to possibly $60. Genentech is a great cancer drug play. I feel this stock will increase by 20% a year for the next 3 years.

I plan on making several micro cap purchases next week. Ill disclose those upon purchasing them. Overall, I'm happy with the performance of the portfolio and it beat my goal of .50% gain per week.

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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.