~Phil Fischer's Scuttlebutt Method~
Common Stocks and Uncommon Profits: [ Ссылка ]
Li Lu's Method:
We will explain Li Lu's complete investing process in full with proof in a later video, but here's the quick and dirty:
1) Get a Value Line subscription (Some libraries offer subscriptions for free).
2) Every week read the new Value Line report from front to back.
3) Find a company that's selling for a low price-to-book (P/B ratio) or price-to-sales ratio (P/E ratio). These ratios are what initially jump out at Li Lu.
4) Find out the companies Return on Deployed Capital, RODC* by taking the owner's earnings (pre-tax and pre-leverage earnings of a business) and dividing it by book value less cash.
5) If the valuation (P/B & P/E) and returns (RODC) are promising, investigate the financial statements.
6) Go line item by line item and find out what the true value is for each item. Run the RODC calculation again.
7) Ask yourself:
a) Is it cheap? (Why is it cheap?)
b) Is it a good business?
c) Is management wonderful?
d) What did I miss?
8) Phil Fischer's Scuttlebutt Method.
NOTES:
*Li Lu calls Return on Invested Capital, the Return on Deployed Capital. The naming convention doesn't matter as long as the concept is the same (Again, we'll explain in a later video).
This method doesn't work well with every business, but for the majority of them. It takes an understanding of businesses and knowing what's the best sense of how much a company earns. Remember, this is not financial advice!
I used D. R. Horton's ($DHI) 2020 earnings and 2021 cash position on purpose. It's just technique. It might have actually been better to use only 2020 numbers and get a RODC of ~25% which lines up with their history a little better. It's great nonetheless.
RESOURCES:
Civilization, Modernization, Value Investment and China Book Review Playlist: [ Ссылка ]
Check out our video on Li Lu's 2019 Peking Lecture with English subtitles here: [ Ссылка ]
CORRECTIONS:
In the video I didn't specify the "Why is it Cheap?" question, but it is an important component.
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