2nd book in my recent attempt to devour all books on Buffett.
Few new ideas, but some noteworthy points below.
- Made a distinction between Market value, Intrinsic value, Book value, Liquidation value
- Made a good argument for value-based, long-term investing. Had tables which showed that if you buy/sell at each precise low/high, you will end up earning alot more. However, if you miss the precise low/high points by 2.5%, returns drop significantly. And if you miss by 5%, you are better off doing the long-term investing.
- An interesting point on DRIPs. If you subscribe to a DRIP program administered directly by the firm, then its ridiculous. This is because the firm will give out dividends because they are unable to use the funds effectively, and if you the investor gives the money back to the firm in exchange for more stock, then 1) the shares are diluted, 2) the firm still doesn’t have a good use for the extra cash.
- In the long-run, the less mistakes you make, the better off you are. “If you just take care of the downside, the upside will take care of itself”.
- Had a table on adjusting the balance sheet assets for liquidation value. Cash 100%. Receivables 80%. Inventory 40%. Plant/Equipment 5%. (rough values)
- Made a good point on calculating operating leverage to gauge how fast earnings will grow as sales grows.
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