Any post about value investing always evokes strong responses, but I thought I would start this one by turning the focus inwards. So, here are a few questions for you : 1. Would you classify yourself as a "value investor"? a. Yes b. No 2. If yes, what makes you a value investor? a. I try to estimate the value of a stock before I invest in it b. I only buy stocks that trade at attractive multiples (low PE, low PBV etc.) c. I do my homework, looking at the fundamentals, before I invest d. I...

In my last post, I looked at the price being paid for growth by valuing the assets in place in a business. To make this judgment, I assumed that the business would pay its entire operating income to claim holders (as dividends to stockholders and interest expenses to lenders). The value of assets in place then becomes the value of the earnings in perpetuity, discounted back at the cost of capital. So, what is the effect of growth on value? To grow in the long term, you have to reinvest some...

The debate about Facebook’s valuation is interesting on many dimensions, but one that is worth focusing on is how much growth is worth, and what you are paying for it. At one extreme are some value investors who argue that growth is “speculative” and that it is  worth very little or nothing. At the other are those who argue that growth is priceless and that you should therefore be willing to pay a “fortune” for it. Both groups seem to be in agreement that valuing growth is pointless,...

        Last Thursday, about 24 hours prior to the initial public offering, I posted on what I thought would happen on the opening day. I argued that this was the most pre-priced IPO in history, with transactions in the private share market providing information on what investors would be willing to pay for the stock. That was the basis for my view that those expecting a large jump on the opening day were likely to be disappointed and that this would be the Goldilocks IPO,...

In mid-February, I posted my valuation of Facebook and my thoughts on what would happen at the IPO. Since the actual offering date is tomorrow and the frenzy mounts, I thought it would make sense to revisit those posts. 1. Valuation Update In my February 16 post on the company, I attached my valuation of the company, based on the S-1 filing as of that date. Quickly reprising that valuation, I valued the equity in the company at $29/share (assigning an overall value of about $72 billion for...

In January, I posted of my intent to put my valuation and corporate finance classes online. As I finished my last sessions in both classes today, I thought it would be a good time to take stock of what the experience taught me about the future of education and how online education can evolve. A quick review. I teach corporate finance and valuation classes to MBAs at the Stern School of Business at NYU and have done so for 26 years. While I have put my webcasts and material online for many...

In this last post on the effects of government on valuations, I want to return to the value destructive effects that corruption, bribery and other "illegal" side-payments to government officials can have on value. In many countries, business people know that to keep doing business, they have to grease palms and provide “gratuities” to the gatekeepers of officialdom. A spate of news stories in the last few weeks should alert us all to the reality that the problem is not only still prevalent...

In my last post, I looked at the negative effects on equity value of the threat of government expropriation (nationalization). In this one, I want to focus on the more benign (and perhaps positive) impact that governments can have the values of some companies, through subsidies in one of many forms: providing or facilitating below-market rate financing, special tax benefits, revenues or price supports and even forcing competitors to provide direct benefits to a subsidized entity. Note that my...

I have been writing about valuation for a long time and for much of that time period, I chose to ignore the effects, positive or negative, that governments can have on the value of businesses. Implicitly, I was assuming that governments could affect the value of a business only through the tax code and perhaps through regulatory rule changes (if you were a regulated firm), but that  a firm's value ultimately rested on its capacity to find a market for its products and generate profits...

I have talked about Google in prior posts on its voting share structure and the increasing cost it is paying for maintaining growth. Well, the company had a big news day yesterday, starting with an impressive earnings report (earnings growth of 60% & revenue growth of 24%) and ending with an announcement that they would be splitting their stock, with a twist. I will focus on the stock split but use it to also make a couple of points about corporate control and earnings growth. Stock...