Intelligent Investments: Weekly Summary

Saturday, December 2, 2006

Weekly Summary

The portfolio finished the week up 0.26% with a distribution waiting on the Fidelity Intl fund, which will likely push the return up to 0.40%. Strong showings again from MHJ as well as TOA and DNA helped the portfolio minimize losses in a down day. The portfolio gained (at mimimum) $628.61 to finish at $244,595.06.

Currently, I am researching microcap stocks. I use the MSN deluxe screener and the yahoo screener the most. MSN I think is the best one- rare for me to say a microsoft product is the best. I also use the fidelity screener to confirm results.

What I look for:
Book value/shr vs. price
Low price/sales
Low price/book
Current ratio greater than 2.5
Growing revenue
Insider or Institutional buying
Low Float

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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.