Professor Glen Arnold

Brexit - a possible scenario for investors

17 Jan 2019 @ 08:00
I posted this newsletter in June 2016 before the Brexit vote – much of it’s logic is still being played out and so I thought you might want to read it again (and new subscribers can have a look). People are demanding to be presented with “facts” regarding the consequences of Brexit.   In particular, they […]

Putting Brexit in a wider context

16 Jan 2019 @ 09:33
I wrote this newsletter in July 2016 – I hope you think it worth repeating the day after a parliamentary earthquake. I think we are all trying to figure out what happened last week. Even Brexit voters seem surprised by their victory, and even more surprised by the market reaction – “why didn’t anybody tell […]

Look for company managers who understand intrinsic value creation principles

15 Jan 2019 @ 09:57
The intrinsic value idea is a clear concept (see yesterday’s newsletter) but any numbers produced from it are bound to be fuzzy because the (c) element of the projected annual owner earnings is very difficult to estimate.  A reminder: Owner earnings and intrinsic value (a)    Reported earnings Plus (b) depreciation, depletion, amortization, and certain other non-cash […]

Estimating intrinsic value the Warren Buffett way

14 Jan 2019 @ 09:41
Intrinsic value is the discounted value of the cash that can be taken out of a business during its remaining life.  This number is going to be highly subjective because the valuer is forced to estimate future owner earnings; the annual sums that can be taken by shareholders without damaging competitive position or unit volume […]

Buffett's "owner earnings" concept illustrated by Scott Fetzer

11 Jan 2019 @ 10:28
In the context of Scott Fetzer Buffett explained what he meant by owner earnings, which is the best measure of money generated for shareholders, and is the key input to intrinsic value estimation: “(a) reported earnings plus (b) depreciation, depletion, amortization, and certain other non-cash charges less (c) the average annual amount of capitalized expenditures for […]

Buffett's approach to designing a compensation package for directors

10 Jan 2019 @ 09:31
An important reason for the exceptional high returns on capital at Berkshire Hathaway’s subsidiary Scott Fetzer is that Ralph Schey, CEO, was incentivised through his compensation deal to focus on returns on capital rather than total profits. As always, Buffett drew up a simple contract, but it hit the nail on the head when aligning […]

Buffett's prize return on capital employed company - Scott Fetzer

09 Jan 2019 @ 10:15
The profit numbers for Scott Fetzer are impressive enough (see last Newsletter), but the even more significant numbers were those for return on capital.  In 1992, for example, Scott Fetzer was employing only $120.7m of equity capital and yet produced after-tax earnings of more than $70.5m – see table.  Furthermore, it achieved this with “only […]

Warren Buffett makes great profits from Scott Fetzer

08 Jan 2019 @ 13:00
Scott Fetzer is one of Buffett and Munger’s greatest ever investments. For only £315.2m Berkshire Hathaway bought a company producing more than $35.6m after-tax in the first year of ownership, 1986.  And it just kept rising, to more than $56.5m in 1990 and more than $83m in 2002 – see chart. After that we lack […]

Buffett's deal to buy Scott Fetzer

07 Jan 2019 @ 09:27
Warren Buffett followed the Scott Fetzer saga in the press (see last newsletter) and thought it might be worth writing a letter to Schey to see if he might be interested in joining the collection of businesses owned by Berkshire; those which were granted a high degree of managerial autonomy and which are encouraged to […]

Warren Buffett's investment in Scott Fetzer

05 Jan 2019 @ 11:47
Warren Buffett’s Scott Fetzer purchase is remarkable firstly because it was a conglomerate.  Until that point Buffett and Munger focused on companies engaged in one line of business and which were expected to continue in that line for decades to come.  See’s Candies stuck to manufacturing and retailing its goodies; the Illinois National Bank only […]
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