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.