The company provides the dates for these quarterly and annual releases on its

The company provides the dates for these quarterly

This preview shows page 151 - 154 out of 263 pages.

The company provides the dates for these quarterly and annual releases on its website. Keep those dates on a calendar and be there for the releases and the CEO’s press conference as if you owned the entire business. The only adjustment to the value comes from major changes in the fundamentals of the business or the economy. For example, by late 2006, Whole Foods had been growing its business for a decade at 19 percent to 20 percent a year. * Then the CEO, John Mackey, announced the company would grow at about 12 percent per year because of major competition from the big chains. That’s a 40 percent drop in earnings and a corresponding big drop in the multiple of earnings—from 40 down to 24. This represented a sea change in the entire valuation analysis. That one announcement dropped WFMI’s value by two-thirds overnight. The stock dropped from the mid-$60s to the mid-$40s and continued
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falling to $8 before rebounding back to its recalculated Sticker Price. For a full analysis of Whole Foods, go to PaybackTimeBook.com . GET UP CLOSE AND PERSONAL Tip: For extra credit, and only if you have the time, you can really boost your understanding of an industry by going to one of its big annual conventions. These usually take place in a convention center and are attended by every business remotely connected with its industry. Many of these businesses will set up booths ranging in sophistication from a simple table with brochures to a mock building full of sophisticated technology. Wear your running shoes. You’ll walk miles. Bring a big empty suitcase. You’ll be taking home pounds of materials. And bring your questions. You’ll have a chance to interview every single serious competitor of your business at its booth. There is no better place to get the competition’s view of a business than direct from the company at its booth. Bring a business card that identifies you as a potential customer. Again, this is extra credit. Mr. Buffett does not do this. Neither do I. If you can’t take the time to keep up with the business on at least a quarterly basis, then you need to reexamine your reasons for buying stock in that business. Managing your own money means taking responsibility away from someone else and embracing that responsibility yourself. This is a rubber-meets-the-road issue. You can’t expect great returns without checking in with your businesses on a regular basis. A little homework is all that separates the successful investors from the wannabes.
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WAITING FOR MICROSOFT I’ve watched Microsoft for many years, waiting patiently for it to get to a MOS price. Every time it gets to what I’d consider a retail value, Microsoft starts buying and the price stabilizes. This makes a lot of sense for Microsoft. It can’t find a place to put all its cash. It’s declaring dividends and giving the excess cash to the owners. But if it can buy the stock at a price that represents a 15 percent compounded return, that’s like investing the same money in something that produces a 15 percent ROIC without all the trouble of doing the business. Microsoft’s CFO is very good at this, and as a
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  • Spring '20
  • Warren Buffett

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