Friday, July 31, 2009

Today vs. Tomorrow

Special thanks to JayHawk for pointing me to a 2008 video from the Value Investing Conference. It features Alice Schroeder (former insurance analyst and Warren Buffett biographer) speaking to Darden MBA students.

I highly recommend it, especially the bit about margin of safety and how Buffett never builds models with projections of the future. He prefers columns of historical data showing the fundamentals of what a company has actually done.

Schroeder has trouble recalling (on the fly) a quote from The Intelligent Investor on how a proper margin of safety renders this exercise unnecessary.

I looked it up and here it is:
“Here the function of the margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future. If the margin is a large one, then it is enough to assume that future earnings will not fall far below those of the past in order for an investor to feel sufficiently protected against the vicissitudes of time.” - The Intelligent Investor
Apparently Warren thinks past performance is an indication of future results. What a concept!

Further thanks to JayHawk for pointing out that my analysis of eBay and Forest Labs is in keeping with this process.

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