Charlie Munger on how to value a stock.
Q1 hedge fund letters, conference, scoops etc, Also read Lear Capital: Financial Products You Should Avoid?
Transcript
Charlie Munger you mentioned that Charlie you've mentioned that if given the chance or same chance with a smaller capital base you would still look for mispriced stock opportunities of course and that would be determined through obviously what we call the intrinsic value of the organization or the company in question an aggregate of discounted future cash flows. Would you work the arithmetic using the fictional data set to illustrate the mathematical Principia to determine an intrinsic value. And I hope you include the comprehensive metal mental model of the key metrics considered any qual qualitative assessments of the management and any assumptions of its industry to determine the durability of its earning power and Warren. Same same. To that effect would you also demonstrate or illustrate that an arithmetic problem set using with a significant capital base and provide the object lessons on how those have changed from a small to a large capital base. Well I can't give you a formulaic approach because I don't use one and I just mix all I just mix all the factors in and if the gap between value and and prices not attractive I go on to something else and sometimes it's just quantitative. For instance when Costco is selling at about 12 or 13 times earnings I thought that was a ridiculously low value just because the competitive strength of the business was so great and it was so likely to keep doing better and better. I can reduce that to a formula for you. I like the cheap real estate. I like the competitive position. I liked the way the personnel system were.
I like everything about it and I thought even though it's three times book or whatever it was then it's worth more. But that's not a formula that anybody. If you are a formula you should go back to graduate school. I'll give you lots of formulas that won't work. This is the longest we've ever gone in the Berkshire meeting without Charlie saying that getting to the point where he prefers Kozhikode or Berkshire.
