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basant
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   Posted: 25/Jan/2009 at 6:29am |
That is an individual call anyone can fix the margin of safety according to his risk reward profile but broadly your thesis is ok except that we need to tweak it abit for some unpleasent happenings.
LT should fall on Tuesday post the Satyam news so the 'margin of safety' increases.
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9StockPortfolio
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Posted: 25/Jan/2009 at 9:24am |
Originally posted by vijayM
Originally posted by 9StockPortfolio
So according to my calculation i get following values for L&T
1) Discounted cash flow for next 10 years
2) Terminal value of the company at 11th year. after that company will never grow.
Intrinsic value= 1) + 2) / Shares outstanding = Rs. 842
Buy Price= Intrinsic value / 50% margin of safety = Rs. 421
I will wait for L&T to come at or below of 421.. otherwise i will not buy no matter how dynamic & high growth company is and how much big it's expansion plans are.
regards
9StockPortfolio
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Basant ji,
I am confused with above analysis. Do you agree with this or do you agree with my analysis of L&T and HDFC bank I have given in this thread?
Please solve this confusion.
regards
vijayM
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Hi Vijay You should either follow Graham or Buffet. Graham's formula you know as you have mentioned. What i have written is Buffet's way of calculating Intrinsic value of a company. He has written about that in his Owner's Manual. I follow buffet's way. because Grahams formula is straight forward which purely looks at EPS and has standard figures.
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9StockPortfolio
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Posted: 25/Jan/2009 at 9:28am |
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Always remember: Price follows Value, No matter how high the CMP is..if value is small then price will come to that value. Like HDFC or L&T or Educomp. One day price will come to Value. and buffet waits for that day.. famous example Coca Cola. he waited for 20 years to buy at his price & Value. As per my beliefe High PE is not an indicator of High growth. rather I think the stocks which have high PE are highly overvalued. I follow standard PE<20 :)
Cheers
9StockPortfolio
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9StockPortfolio
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Posted: 25/Jan/2009 at 11:13am |
Originally posted by basant
That is an individual call anyone can fix the margin of safety according to his risk reward profile but broadly your thesis is ok except that we need to tweak it abit for some unpleasent happenings.
LT should fall on Tuesday post the Satyam news so the 'margin of safety' increases.
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Basant sir, If you look carefully to my valuation method, you will come to know that the rates i have chosen keeping those unpleasant happenings in mind. L&T has grown at the rate of 30% in the past, why it should grow by that rate in future? I am trying to be as pessimistic as i can. So i assume growth of 8.5% These figures will take care of those unpleasant happenings, if i initially choose them in my calculation. if in case L&T performs more than 30% every year, i would rather a pleasant happening for me  I am destined to fail if i chose 30% growth rate for next 10 years and company fails to achieve that after couple of years. So i should chose minimum possible growth rate in the first place. as i am comfortable with 8.5% for first 7 years, then 3% for next 3 years and from 11th no growth.
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vijayM
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Posted: 25/Jan/2009 at 11:41am |
Originally posted by basant
That is an individual call anyone can fix the margin of safety according to his risk reward profile but broadly your thesis is ok except that we need to tweak it abit for some unpleasent happenings.
LT should fall on Tuesday post the Satyam news so the 'margin of safety' increases.
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Basant ji
The point is just not margin of safety.
I agree with margin of safety being an individual call but what about growth rate being assumed at 8.5% while LTs 10 avg historic growth rate is 17% (and 5 year avg is 40%). Further, India has huge potential for infra growth. By being too conservative in our analysis, are we not going to miss the bus? The growth rates assumed should be realistic and not optimistic or pessimistic. I give more weightage on past track record though a sense of future is essential. (For ex: infy has 56% growth record but future is not that good) Assuming 8.5% growth rate for LT is not convincing to me.
regards
vijayM
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If a business does well, the stock eventually follows:Warren Buffett
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9StockPortfolio
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Posted: 25/Jan/2009 at 11:51am |
Originally posted by vijayM
Originally posted by basant
That is an individual call anyone can fix the margin of safety according to his risk reward profile but broadly your thesis is ok except that we need to tweak it abit for some unpleasent happenings.
LT should fall on Tuesday post the Satyam news so the 'margin of safety' increases.
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Basant ji
The point is just not margin of safety.
I agree with margin of safety being an individual call but what about growth rate being assumed at 8.5% while LTs 10 avg historic growth rate is 17% (and 5 year avg is 40%). Further, India has huge potential for infra growth. By being too conservative in our analysis, are we not going to miss the bus? The growth rates assumed should be realistic and not optimistic or pessimistic. I give more weightage on past track record though a sense of future is essential. (For ex: infy has 56% growth record but future is not that good) Assuming 8.5% growth rate for LT is not convincing to me.
regards
vijayM |
Dear Vijay You are contradicting what you have written in your signature. You are counting on L&T's good performance, which IS NOT an indicator of good prospects. You should buy L&T at a so good price that even a mediocre business will fetch you your profit. Again, it's own perspective. i follow my own. and tell you i had calculated Suzlons price at around 70 when last year it was trading at 230.. You shouldn't be thinking of Value investing if you believe this is the last bus to catch. Patience is most important. I am too learning this. I too have made nonsense investments and burned my fingures. but now no more nonsense. If Mr. Market want me to buy from him, he should sell those stocks where i am comfortable in buying. I can wait untill he comes with really good bargains.
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vijayM
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Posted: 26/Jan/2009 at 1:24pm |
9STOCK JI,
what is comfort buying level for HDFC bank? Give details of calculations.
vijayM
Edited by vijayM - 26/Jan/2009 at 1:25pm
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basant
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Posted: 26/Jan/2009 at 3:23pm |
1) L&T would find it almost impossible to grow at 30% for the next 10 years.
2) Investor should take a 2-3 year view. The world changes in 5 years and 10 years is two generations in the stock market.
3) If L& T grows at 8.5%CAGR then one can make more money by shorting L&T over the next 12-24 months then one can by keeping it for the next 120 months. 8.5% is abysmally low and it will do far far better then that.
4) AT 8.5% CAGR for India's most efficient Infra companywe can well imagine how our roads, bridges, power stations, ports would be in the next 10 years. There is no need to invest money in stocks in that kind of an assumption. Money is better in abank.
5) At the end of the day some stocks appear overvalued for one and undervalued for others and that is why we have a market so instead of trying to get a collective wisdom in the afffirmative an individual should make a personal call.
Originally posted by 9StockPortfolio
Originally posted by basant
That is an individual call anyone can fix the margin of safety according to his risk reward profile but broadly your thesis is ok except that we need to tweak it abit for some unpleasent happenings.
LT should fall on Tuesday post the Satyam news so the 'margin of safety' increases.
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Basant sir,
If you look carefully to my valuation method, you will come to know that the rates i have chosen keeping those unpleasant happenings in mind.
L&T has grown at the rate of 30% in the past, why it should grow by that rate in future? I am trying to be as pessimistic as i can. So i assume growth of 8.5% These figures will take care of those unpleasant happenings, if i initially choose them in my calculation. if in case L&T performs more than 30% every year, i would rather a pleasant happening for me
I am destined to fail if i chose 30% growth rate for next 10 years and company fails to achieve that after couple of years. So i should chose minimum possible growth rate in the first place. as i am comfortable with 8.5% for first 7 years, then 3% for next 3 years and from 11th no growth.
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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
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