What she has to say about his investing methods is quite interesting, because it does not totally confom with how many people perceive it to be. I think the most common perception is that he uses some type of DCF analysis, but in reaction to the video that only seems implicit in his analysis. He does not make any grand assumptions about the future. Even though I find his folksy rhetoric to be somewhat misleading to potential investors, he actually doesn't really need much beyond algebra to calculate value. I'm usually reluctant to say that a video is worth your time, because who wants to spend 48 minutes listening to a lecture after a long day. As she mentions in this video though, Schroeder plans on making a book that focuses exclusively on how Warren Buffett invests/values a company. I wouldn't be shocked to see the book cost more than $35 and take several hours to absorb. While there will be things hashed out in further detail in the book, this is free and takes a fraction of the time to ingest. So I do highly recommend watching this video. Consider it a video/book arbitrage trade.
Tuesday, January 11, 2011
An explanation of exactly how Warren Buffett values a business
One of the most pressing questions I found myself asking as a Warren Buffett fan, was "how does he do really value these companies?" He mentions how he calculates "owner's earnings" in annual letters, but that is only a starting point for valuing a company. I found this video of Alice Schroeder discussing exactly how Warren Buffett values a business a while ago on ValueWalk and it has remained at the forefront of my mind ever since. Seeing as it only has 16,000 views on YouTube, it hasn't received the visibility it deserves. Alice Schroeder is a great resource because she has spent extensive amounts of time and Warren Buffett trusted her judgment to the point that he let her follow him and write about it. She hasn't recently, but she has a blog/website that offers some Berkshire/Buffett commentary and tea leaf reading. Miguel at Simolean Sense did an interview with Schroeder as well in early November that was very extensive and offered some further insight into Buffett.
What she has to say about his investing methods is quite interesting, because it does not totally confom with how many people perceive it to be. I think the most common perception is that he uses some type of DCF analysis, but in reaction to the video that only seems implicit in his analysis. He does not make any grand assumptions about the future. Even though I find his folksy rhetoric to be somewhat misleading to potential investors, he actually doesn't really need much beyond algebra to calculate value. I'm usually reluctant to say that a video is worth your time, because who wants to spend 48 minutes listening to a lecture after a long day. As she mentions in this video though, Schroeder plans on making a book that focuses exclusively on how Warren Buffett invests/values a company. I wouldn't be shocked to see the book cost more than $35 and take several hours to absorb. While there will be things hashed out in further detail in the book, this is free and takes a fraction of the time to ingest. So I do highly recommend watching this video. Consider it a video/book arbitrage trade.
What she has to say about his investing methods is quite interesting, because it does not totally confom with how many people perceive it to be. I think the most common perception is that he uses some type of DCF analysis, but in reaction to the video that only seems implicit in his analysis. He does not make any grand assumptions about the future. Even though I find his folksy rhetoric to be somewhat misleading to potential investors, he actually doesn't really need much beyond algebra to calculate value. I'm usually reluctant to say that a video is worth your time, because who wants to spend 48 minutes listening to a lecture after a long day. As she mentions in this video though, Schroeder plans on making a book that focuses exclusively on how Warren Buffett invests/values a company. I wouldn't be shocked to see the book cost more than $35 and take several hours to absorb. While there will be things hashed out in further detail in the book, this is free and takes a fraction of the time to ingest. So I do highly recommend watching this video. Consider it a video/book arbitrage trade.
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