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Conventional value investing looks for stocks with the lowest price/earnings ratios or price/book value ratios. Unfortunately, earnings and book value have too many inequities that hinder apples-to-apples comparisons and are sometimes even manipulated through discretionary accounting methods. As a result, many of the bargains in the stock market are mirages.
Doppler Value Investing link uses free cash flow and the net liquid assets on the balance sheet to calculate the estimated intrinsic business value of a stock. Free cash flow and net liquid assets are less dependent on arbitrary accounting methods and are more difficult to manipulate. These yardsticks provide a much more accurate picture of a company’s performance and financial soundness than the conventional yardsticks like earnings and equity.
Just as Doppler weather radar reveals tornado vortex signatures and other weather features that conventional weather radar does not, Doppler Value Investing reveals warning signs that conventional value investing does not. Doppler Value Investing helps you to see what Warren Buffett sees and why he’s willing to pay higher price/earnings or price/book multiples for certain types of companies but uninterested in buying other types of companies at any multiple.
Doppler Value Investing is made possible by Ruby on Rails. I am not smarter or wiser than the late Benjamin Graham and the legendary Warren Buffett, but I have the combination of technology, Internet access, and software development ability that they lacked.
Minnebar 9 (2014-04-12)