Comments on: OSV Auto Investing Paper Portfolio

By: Jae Jun

Jae Jun — Mon, 15 Nov 2010 17:40:50 +0000

@ Bob,
Can’t be backtested I’m afraid. There is no way to backtest DCF or EPV and reproduction value with any degree of accuracy.

By: Bob

Bob — Mon, 15 Nov 2010 13:43:13 +0000

You need to back test this. Portfolio123.com will allow this to be done. Why don’t you post the results here. Obviously if strategy has not worked on past it is unlikely to do so again.

By: T. Cougar

T. Cougar — Mon, 28 Dec 2009 21:14:18 +0000

Jae,

How can I find out what are your current holdings?

TIA for your valued reply!

By: Mechanonuke

Mechanonuke — Tue, 22 Dec 2009 02:34:35 +0000

AIRT specifically seems interesting at first look. I’ve been looking at BOLT too

Will dig into AIRT it further.

By: Jae Jun

Jae Jun — Sat, 19 Dec 2009 22:09:20 +0000

@ Tyler,

Check out Buffett’s 1986 letter right at the end for owner earnings definition.
http://www.berkshirehathaway.com/letters/1986.html

And read this post as well
http://www.oldschoolvalue.com/valuation-methods/working-capital-free-cash-flow-fcf/

@ Ankit,
No back test. Takes too much time. Easier to just do it and see

@ Fabrice,
Great work Fabrice.

By: Fabrice

Fabrice — Sat, 19 Dec 2009 09:04:56 +0000

As I said to Jae by email, you may also be interrested by this “screener”:

http://www.investisseurheureux.com/screener/

based on OSV Excel Sheet. Datas are updated each week.

By: Ankit Gupta

Ankit Gupta — Sat, 19 Dec 2009 07:23:14 +0000

Have you back tested a strategy like this?

By: Tyler

Tyler — Fri, 18 Dec 2009 11:13:22 +0000

Thanks Jae, i think a problem with DCF for me is working out the owners earnings. Like For JBHifi i wrote a letter to a fairly well known value investor here this is it:

Operational Earnings = 145
Less
Capital Expenditure = 44
Total = 101
Plus
Depreciation On Fixed Assets = 19
Less
Tax = 41

Total = 79 Mil

Revenue = 2300
COGS = 1800
Less A few Other Things (Pg 53 Of Annual Report)
Total = 225
Less
Tax = 41
Cap. Expenditure = 44

Total = 140
Plus
Dep. On Fixed Assets = 19

Total = 159Mil

Shares Oustanding = 107 Mil

This is Is Either $1.48 or $0.74 Per Share.

Do You Perhaps Know Their Owners Earnings?
http://www.asx.com.au/asxpdf/20090911/pdf/31kp9589sd444g.pdf (JBH Annual Report)

By: Jae Jun

Jae Jun — Fri, 18 Dec 2009 07:31:31 +0000

@ Tyler,
Well done on your profitable investment. Doing good at such a young age. I remember visiting cash converters so many times trying to pick up bargains, but never found one…

@ Ted,
I’m not going to just blindly add it if all 3 are green but the way I use it, if all 3 valuations is less than the market price, I’m pretty confident it is cheap unless something big and unpredictable happens.
Discount rate, I’m thinking at least 25% for 2 of them.

@ Jim,
Thanks for your comment Jim.

@ peekay,
hey I didn’t think about that
But there will be a low and high valuation so anywhere in between depending on how I think the market is acting. If it is volatile, I’ll just sell at the lower intrinsic value but if the market is fairly steady, I wouldn’t mind selling it at the midway point.

By: peekay

peekay — Fri, 18 Dec 2009 04:29:07 +0000

Nice work Jae.. One qs .. which one you’ll take as the Intrinsic Value .. for selling the stock i.e. from EPV, Graham’s or DCF … or an avg of the three? Thanks.

By: Jim

Jim — Thu, 17 Dec 2009 22:15:28 +0000

Ted,

Simplicity, according to Einstein, is the highest order of intelligence. Choosing a 15% discount rate because that is how much of a return you are seeking on an annual basis is logical and a correct way of approaching a discount method. Being ‘precise’ has nothing to do with value investing. As Ben Graham often said, it is possible to determine whether someone is overweight without the need of a scale. To simply look at them is suffice.

By: ted

ted — Thu, 17 Dec 2009 15:53:11 +0000

also, what about margin of safety here? i dunno, i’m not a huge fan of using all 3 like this together, i think usually it’s more appropriate to pick one or two and use those to determine the price, then buy if there is an adequate MOS.

By: ted

ted — Thu, 17 Dec 2009 15:51:44 +0000

“i have been using a 15% discount rate in my DCF as i want 15% annual returns”

this is simplistic, and not the right way to think about discount rates.

expanding on that logic, i think i will use a 1000% discount rate as i want 1000% returns.

By: Tyler

Tyler — Thu, 17 Dec 2009 14:34:46 +0000

Hi Jae, Keep up the good work.

i have been using a 15% discount rate in my DCF as i want 15% annual returns. I found Cash Converters which i bought so far up 25%, and i bought Telstra with a 12% discount rate so far its up almost 10%.

Thanks