They were almost as desperate to get the hell out of OCA as Teitei is to get out of Sylait bonds.
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HI Winner, when you talk about resale and new sales profits, are you meaning capital gains over and above the previous occupational rights agreements (resale capital gains) and capital gains on new builds (development margins)?, or the cash from occupational rights agreements themselves be it resale or new?
Just to be clear…
Though you keep saying the value of a business is it’s DCF (absolutely correct)…
You have confirmed that you are unable to do a DCF for OCA. That is beyond your ability.
The implication being that you do not know what the business is worth.
Your argument being that you don’t need to know what it is worth, because you have a strong sense of what it is NOT worth (the current SP).
Just in the same way that you can fat shame someone without knowing their exact weight.
That does sum it up, correct?
Just one other thing to clarify…
You are not able to predict the cashflows…
Yet you then say you have a rough idea based on your discount rate.
But what are you discounting since you do not know the cashflows?
And please don’t think this is me being cheeky or an arse… I genuinely want to know.
Are you running scenarios based on possible future CF and coming up with a range? That would make sense to me.
In which case you can’t say you can’t do a DCF.
Btw, I believe Warren does do a DCF with TV calc - it’s just in his super computer head. When he was younger especially, he could quickly run scenarios and crunch the numbers to come up with a likely value range all in his head. Maybe a few scribbles and notes on the annual report.
So he never did formal DCF using a spreadsheet or anything like that. But he is trigg, and has been able to do all sorts of complex valuations in his head.
Yep, super basic... look at current cap and figure out roughly what can be returned now in cash per year and then a rough estimate of how sustainable this is and if it will grow, by how much and over what time and most importantly how much capital will it take to grow and where will this come from.
So even with no growth from here you will do pretty well.
For you to do poorly the return on total capital would have to be extremely low.
Ok cool. And understood.
I would just point out then that it is inaccurate to say you can’t do a DCF for OCA.
You may or may not be able to do one that is ACCURATE… but you are clearly doing some sort of DCF to enable you to end up with some sort of valuation range.
This valuation range is higher than the current SP and you feel provides you with a satisfactory margin of safety.
All good.
To reinforce the notion of the Buffett super computer…
Some years ago I remember reading a shareholder account.
I can’t remember if this was a BRK shareholder or back in one of the partnerships.
Anyway, this bloke had a meeting with Warren. As it went on, Buffett picked up a document and started scanning it.
Out of the blue, the shareholder asked him: “Warren, what’s 99 times 99?”
Without hesitating, or looking up Warren replied “9801”.
I mean, Jesus Christ. Maybe we should all just index!!!
A conventional maths mindset might think you need to know your 99 times table? But Buffet would do it the easy way that anyone can do in their head … (100*99)-99
He should have asked a more difficult question.
The way you describe the mechanics is quite possibly how Buffett did it BB.
Only at the speed of light…
Although, it has been said that Buffett has a kind of photographic memory for numbers. And has actually memorised a vast range of timetables.
He has never come out and said that he has a photographic memory. But he has said that some things he is able to readily recall.
Either way, he is a phenomenon. SR can probably confirm or deny what I say.