Intelligent Investments: Inflation worriers subsiding

Tuesday, December 5, 2006

Inflation worriers subsiding

The markets and government have been strongly worried about inflation, to the point where growth is currently being stifled in order to stop it. Numbers released today expose the fact that inflation fears are overblown and for the most part, we are done with Fed rate hikes. The Commerce Dept released wage and benefits figures showing a 2.3% increase, much slower than the 3.8% estimated figure. Productivity was also revised upwards for the 3rd quarter proving that the economy did better than most contend.

The portfolio gained 0.6% (+1,441.06) on the day extending my win streak and breaking the quarter-million mark. New holdings are ATRM [750 shares @3.23] and EGR [1000 shares at $1.65].

No comments:

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.