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No. of Recommendations: 7
Hi Gen,

Hmmmmm ... First off, nice to have met you in Raleigh ... Heck, I almost feel like I'm getting to be a member of your family ... Every BMWM CON I seem to meet more and more of you …. Is this is a plot for your family to take over the world? I mean if your CAGR of attending BMWM continues at its current pace …. <mischievous wolven grin>

As for slicing and dicing ... there are probably as many ways (and reasons to do so) to S&D as there are ways to skin them fat and tasty bunnies out there <slavering wolfen glance around> ... Most of the reasons to do so boil down to an attempt to determine where the stable avg historical CAGR line is in relation to the present price – for reversive or even aversive purposes <g>.

An automated easy way is to look at the various charts Kleiny has available for us ie. the multiple DIS charts you mention ... For your example of Dissy …

16 yr chart … RMS = 0.13

20 yr chart … RMS = -0.02

25 yr chart … RMS = -0.23

30 yr chart … RMS = -2.10

35 yr chart … RMS = -1.50

40 yr chart … RMS = -1.09

Very simply, looking at the 30 yr chart RMS first then the 25, 20 & 16 yr versions, one might reasonable take away the notion that Dissy has gone from a major deviation from norm on the down side (-2.1) back to being approximately fairly valued today. And for a first fast glance at things, that is not bad … and more often than not would offer a reasonable enough of a picture from a BMWMish pov.

However, first fast glances are not always as precise or accurate as we would like, especially if this mangy ole critter has skin in the game.

No matter what the advertising critters might suggest, there ain’t no free lunch .. no way, no how … NEVER! Everything costs sumthin … and so what is the “cost” of a quick little glance at a Klein chart, or even a series of em?

Oversimplification allows us to put our paws around all sorts and manner of different things, BUT it often costs us important (maybe critical?) details. For instance, what if a company has been moving from a position of growing market share in an industry with a market growing at maybe 10% a year to a commanding stable market share in a market that’s slowing to maybe 5% a year (market plateaus by any other name …)? Then our neato BMWM avg historical CAGR for revision purposes line has to start a slow parabolic sorta curve downward from the nice straight heading up lines we are used to. Part of what I think that means on the buy side is that what might appear to be a Kleiny -2 price might not actually be … and on the sell side it might mean we’re over the fair value well before we thinks we is … They seem like important little details to me, but maybe that’s because we lupines are very VERY careful about all sorts of tails <wink> … now now Murph, get yer mind outa that gutter … we wolves are very sensitized to quickly closing doors and other TAIL specific threats etc. <smile>.

Another thing this mangy forest wanderer tries to understand and consider, is the business cycle … because unless I can feel somewhat confident that the business in question has about 2 cycles on a chart, I’m not sure where they are in their business cycle and where the CAGR curve I’m gazing longingly at is starting relative to their business cycle. Now why would that be important?

Well, all you 16 yr chart speculators (in contrast to the 25yr+ chart BMWM investors --- hehehe couldn’t help saying it that way <g>) … think about what it means to where the average historical CAGR line (that we believe price will revert to) and its related low CAGR lines and over valued lines, especially their placement. Wherever the chart is starting at in the business cycle, if one doesn’t have exactly 1 business cycle on the chart …. Your avg mightent be the average I think we want or need to best maximize BMWM profits much less minimize risks because its probably unduly weighted up or down by that extra part of the cycle … and we forest dwelling wolves need to minimize risks … we usually get to make only 1 mistake <wry grin>. Similarly, the low and high CAGR lines (or some version of your BUY SELL lines) will be moved up or down from where they should be based upon whether you have more higher or lower parts of a business cycle beyond just one. And if there is less than a single business cycle on a chart ….. where’s the precedent for reversion to the mean for that company?

When I consider Dissy, I seem to find it and its grouping (diversified entertainment) as having between maybe a 16 and 20 yr business cycle. And so I favor the 40 yr Kleiny chart over the others for Disney. But that’s just the start … I then draw my own CAGR chart (using excel vs French curves … which just makes this ole wanderin wolf recall all sorts and manner of French curves <wistful expression>) … and adjust the starting point and or placement of the avg CAGR to better reflect my version of accuracy and precision. Basically I discount much of the peak of the early 70s and part of the higher values approaching 2000 (on EPS and various DD grounds) with the end result being that I find Disney to be more presently undervalued than the Kleiny 40 yr curve might suggest.

But there are other ways and reasons to slice and dice … one of which I think Mr BMW hisself highlighted several times at the CON … Instead of just arbitrarily picking blocks of years (5 or 10 year periods), why not actually look at the nature of the curves and choose the clear trends … iow the when the price moves at a slope approx equal to the avg CAGR, steeper and less steep than that avg CAGR …

Now the way ole Icy draws his lines … Dissy had a fairly even priceline with a CAGR of about 7% from 1970 to about 1985, and it wasn’t matching the market growth nor its EPS … but from 1985 to about 1990 it must have been a giddy time for holders of DIS as its CAGR was well over 100%. In about 1985 there was one of them relatively rare magic BMWM moments as Price growth and earnings growth, along with market dynamics were telling a TAIL that the price had to grow a LOT and quickly! Then on my curves it shows a CAGR of about 12% up to about 2000. Since then while it has gone down and up a bit, its avg CAGR is almost buppkiss .. nada …. Ye big ole goose egg … So … now what? Sheridan’s charts can show you the relative EPS vs price appreciation for the last 10 years or so and that’s a great help … unless … well …. What if a Sheridan chart suggests for the past 10 years that the price CAGR is significantly below the EPS CAGR …. Does that mean that the price should start to catch up? Or might it mean its still reverting to a true avg historical price CAGR but it’s BELOW where ya think it should be ie … what if the price CAGR was well above the EPS CAGR (and avg price CAGR) between 10 and 20 years ago and is only now coming back down to where it should be?

Or if one is more like Ponch and Icy, you’ll gravitate more towards some metric of the FCF (Free Cash Flow) …. There’s just sumthin almost viscerally pleasing about flowin cash that wolves love, providing the flow is in the right direction <smile>.

Anyways …. I do love to slice and dice in terms of what the price CAGR line is showing vs set year blocks … because regardless of where one might place the avg CAGR or other lines, knowing whether current price trends are under or over recent past trends either has me tightening up stock stops anticipating a SALE (instead of tightening personal sphincters <g>) or considering watchlisting / buying of a stock.

So to make an unnecessarily long story even a bit longer …. Slicing and dicing is a powerful tool one can use with the BMWM, and maybe a critical one in order to use it well. And while comparing different time period Klein charts can offer a quick glance sort of S&D, doing your own based upon the obvious trends on a BMWM CAGR price chart and adding some DD and FCF and or EPS info and uncommonly common sense seems so much more helpful … dare I suggest even more accurate and precise and profitable? OK OK, I dare <smile>.

Take care,
IcyWolf
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