How value oriented is your portfolio?

[Patmo]

It thought it would be a fun exercise to see how deep the value-tilt of your portfolio is. Not meant to be a razor sharp valuation exercise, but using a simple yardstick:

 

1.Determine the price you paid vs. the book value at acquisition for each investment in your portfolio right now

2.Average them

 

This should be a decent yardstick to gauge how value-tilted your portfolio is.

 

I'll start with my result: .62x book, expected a little lower but pretty good still

[Jurgis]

I'm going to shout @oddballstocks for this one!!!  ;D

 

 

 

Seriously: why would you consider P/B the only "value orientation" measure? Only Graham net-net investors can call themselves value investors?

 

My lowest P/B is 1.X in BRK.

Edit: I realized that's not true. I have couple small micro/nano-cap-oddballstock'sy positions that likely have lower P/B than BRK.

Edit2: To show how much I track P/B, it took me over hour to realize that I also have BAC that is < 1 P/B. So I guess I could be in this contest after all. ;)

And then I remembered that have a number of "really cheap" E&Ps that trade way below book. Great value oriented companies. So sad that they are close to BK. ;)

 

My highest is close to infinity with some Malone stocks.

I probably should buy some MCO just to annoy P/B vigilantes.  ;D

[Patmo]

It's not a contest, just a classic yardstick measure to see how value-tilted you are.  There's no winner or loser, higher simply implies you on average put more weight on future cash flows aka growth. Some might disagree with the academic definitions of value/growth used here but whatever it's just for fun anyway.

[wachtwoord]

It's not a contest, just a classic yardstick measure to see how value-tilted you are.  There's no winner or loser, higher simply implies you on average put more weight on future cash flows aka growth. Some might disagree with the academic definitions of value/growth used here but whatever it's just for fun anyway.

 

Future cash flows doesn't imply growth. The future cash flows can be stable (or declining).

[rishig]

It's not a contest, just a classic yardstick measure to see how value-tilted you are.  There's no winner or loser, higher simply implies you on average put more weight on future cash flows aka growth. Some might disagree with the academic definitions of value/growth used here but whatever it's just for fun anyway.

 

You can have stable cash flows far out in the future like an annuity yet the business may not need any tangible assets (i.e. book value could be negative). Just because P/B is large doesn't mean that one is putting more weight on growth. There are quite a few stable asset light businesses with barely any assets. If it were trading at 5x P/FCF it is value yet it could be trading at a very large P/B.

 

Buffett purchased See's Candies at 5x EV/EBIT and 3x P/B. It was producing $5M in EBIT and had $8M in tangible assets. He paid $25M. It has produced an aggregate of $1.5B over 35 years. And it is not dead yet. Was it not value even though he paid 3x P/B?

 

On the other hand, I could have been buying businesses that are "cheap" on P/B but get in real trouble. In 2006-2007, the homebuilders for the first time started trading below book value. Many value investors jumped in thinking that the assets is land and you are getting it below book. Unfortunately, the land was acquired at peak prices and they had to take write downs or sell it in distress. Also, they had to raise equity. Book value per share for KB homes dropped by almost 85%. So, you could buy it at .5x book value and yet be in a lot of trouble. The story repeated with E&P companies.

 

Wish it were so simple to look at certain metrics and declare that my portfolio is "value" oriented. I am not sure if this question is really meaningful without digging deeper into what one holds.

[Jurgis]

What rishig said.

 

Sorry, I won't join the "for fun" part. I see how this question might be fun in terms of finding net-net'ers on this board. I am not one though.

 

Take care and have fun. :)

[LC]

Mcap BV P:B AIG 61.89 89.6 69% BAC 143.11 256 56% BRK 352.15 255.5 138% FCAU 10.3 44.8 23% LUKOY 35 82.1 43% MMM 99.5 11.7 850% NKE 113.97 13.4 851% SAN 67 88 76% SNA 9.2 2.4 383% TFSL 5.1 1.7 300%

[Patmo]

It's not a contest, just a classic yardstick measure to see how value-tilted you are.  There's no winner or loser, higher simply implies you on average put more weight on future cash flows aka growth. Some might disagree with the academic definitions of value/growth used here but whatever it's just for fun anyway.

 

You can have stable cash flows far out in the future like an annuity yet the business may not need any tangible assets (i.e. book value could be negative). Just because P/B is large doesn't mean that one is putting more weight on growth. There are quite a few stable asset light businesses with barely any assets. If it were trading at 5x P/FCF it is value yet it could be trading at a very large P/B.

 

Buffett purchased See's Candies at 5x EV/EBIT and 3x P/B. It was producing $5M in EBIT and had $8M in tangible assets. He paid $25M. It has produced an aggregate of $1.5B over 35 years. And it is not dead yet. Was it not value even though he paid 3x P/B?

 

On the other hand, I could have been buying businesses that are "cheap" on P/B but get in real trouble. In 2006-2007, the homebuilders for the first time started trading below book value. Many value investors jumped in thinking that the assets is land and you are getting it below book. Unfortunately, the land was acquired at peak prices and they had to take write downs or sell it in distress. Also, they had to raise equity. Book value per share for KB homes dropped by almost 85%. So, you could buy it at .5x book value and yet be in a lot of trouble. The story repeated with E&P companies.

 

Wish it were so simple to look at certain metrics and declare that my portfolio is "value" oriented. I am not sure if this question is really meaningful without digging deeper into what one holds.

 

It's not meant to bring deep insights on its own though. If you have a better alternative proxy for the value of your book feel free to suggest. You can't because there is no method that is as broadly applicable. Which is the entire point of the exercise, you've drilled down at the individual level already, take a look at what the portfolio as a whole says and feel free to compare vs your individual holdings.

[PatientCheetah]

Price to free cash flow is better for modern business IMO

[frommi]

Price to free cash flow is better for modern business IMO

 

And why not expected rate of return? :)