A READER’S QUESTION
Just wanted to shoot you a quick email applauding you for putting together the “Ultimate Investor Checklist.” investment_principles_and_checklists_ordway This may be the most valuable word document I have on my computer.
Quick question, I’m a huge fan of Charlie Munger (currently am reading Poor Charlies Almanack)- In the checklist when he describes being a business owner Charlie says:
- Ignores modeling forecasts for the next quarter, next year, or next ten years.
- Ignores forecasting completely.
http://www.mymentalmodels.info/charlie-munger-reading-list/ (Search through this link on Munger’s Mental Models.
If Charlie Ignores modeling and forecasting, how does he go about estimating Intrinsic Value? I know Charlie has said in the past that he has never seen Warren Buffett use DCF, so how do they go about estimating Intrinsic Value?
John Chew: A good question. First, a model is not reality but a metaphysical description of reality. You probably should build a simple spread-sheet of sales, capex, taxes, etc. to understand the economic model of the business you are looking at–we are not all geniuses like Buffett or Munger.
But rather than have me say what I think Buffett would say, read the source. Note his analysis of Coke and Sees Candies:
Buffett_Lecture_Fla_Univ_Sch_of_Business_1998 Hope that helps!
Arbitrage by Buffett_Research (just for Buffaholics)