Intelligent Investments: Seven Day Win Streak

Wednesday, December 6, 2006

Seven Day Win Streak

The portfolio gained for the seventh day in a row, up 0.14% (+347.87) whereas all major indexes were down on the day. There wasn't much news on the day as investors wait for the key jobs report that will be released Friday. However, the ADP Macroeconomic Advisors employment report predicts employment rolls will have increased by 158,000, ahead of the 110,000 predicted by economists.

New holding to report. Today, I bought 500 shares of Paragon Technologies, PTG at 5.80. I have two other limit orders outstanding but they didn't reach my price.

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.