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No. of Recommendations: 3
investinginfinity -

Thanks for buying the book, first of all.

Second, I estimate intrinsic value using a short-hand method before I run the numbers through my model, and then if the earnings quality and competitive advantage pass muster then I use a more detailed approach. I want to stress that this approach does not always work, as readers who recall my "Christmas present in October" comments about First Marblehead can attest.

The reason I value the company twice is to save time. If a company doesn't look to offer a minimum 15% CAGR every year for the next three years, then I move on to the next company. Time is precious and I am trying to avoid value-traps. If, however, my minimum return looks achievable, then I will create an Earnings Power Chart, think about competitive advantage, and also value the business using 3-4 approaches, including the Croesus Test which I introduce at the end of the book.

My next column for Real Money shows how to estimate your annualized return for the next three years. It is a simple model that uses Yahoo data. I track about 80 companies and every day I hit the MSN 'update quotes' button and my Excel SS automatically recalculates my 3-year CAGR, as well as the longer-term PIV-ER numbers. (See posts from last Fall on PIV-ER to learn more.) A reader of this board showed me how to link MSN quotes to my SS, and this function have saved lots of time. I'll explain how you can do this in my column, which I will post here.


Hewitt
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