Buffett Tutorial on Accounting and Valuation: See’s Candies Case Study

I have always maintained that excepting fools, men did not differ much in intellect, only in zeal and hard work.  –Charles Darwin

Value investing works, because it does NOT work ALL the time. –Joel Greenblatt

Today’s post focuses on accounting (GAAP) and valuation through the words of Warren Buffett. The case study on See’s Candies and the other readings will help improve your skills. The burden is on you to understand and apply the lessons. If you do not understand FIFO or deferred taxes, then look up those terms in a basic accounting book, then do problem sets to grasp the concepts. Don’t take Buffett’s words on faith; try to apply the concepts of economic Goodwill to a commodity based company like, for example, US Steel (X) versus a franchise company like Coca-Cola (KO). Do you agree with Buffett’s analysis?

Prof. Joel Greenblatt’s book, The Little Book that Beats the Market, is (simply) an application of Buffett’s thoughts on economic Goodwill.

Helpful hint: Take a subject like share repurchases or divdend policy and try to find many different sources on the subject. Learn the subject to death. Master how, when or if a company should act in returning capital to shareholders.

See’s Candies Case Study:Sees Candies 2012

SUPPLEMENTARY READINGS

A Parable on Valuation: The Old Man and the Tree or a Parable of Valuation

Inflation:Inflation Swindles the Equity Investor and Buffett inflation file

EBITDA: Placing EBITDA into Perspective and TEV to EBITDA Research

Joel Greenblatt: Little Book That Still Beats the Market, The – Joel Greenblatt

Secrets of (view): http://youtu.be/3PShSES5nBc   25 minutes

Corporate Finance

Share Repurchases: Corporate Structure and Stock Repurchases and Assessing Buybacks from all Angles_Mauboussin

Dividends: Dividend Policy, Strategy and Analysis

You will beat Wall Street easily if you apply the above lessons. The hard work is in mastering the material.   Stay the course.

6 responses to “Buffett Tutorial on Accounting and Valuation: See’s Candies Case Study

  1. Its funny reading Buffett’s article on inflation (great article by the way) and then compare to what he says about taxes today…

    • I wonder why Buffett doesn’t speak out against the Fed and what it is doing to the dollar and poor people’s paltry savings. Buffett’s a crony capitalist hypocrite. His Dad would be sad.

      • But the guy already has so much money… What does he gain from this? I mean, could it be that the guy really changed his mind and now thinks government must “control” market forces? It just seem weird that he would say this before and now that he is close to his death just change his view completely when he has soo few to gain and so much to lose (credibility).

  2. John, this is a great set of links and one that gives a clear insight into how to value a consumer franchise.

    Thanks so much
    KR

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