Old Investing Advice Gems from Wallstraits days

[Musicwhiz]

Also, I believe DCF can be done on companies with predictable cash flow for the past 5-10 years. With such predictability, we can project the cash flow into the future to get the intrinsic value. Since we might not have perfect projections due to random errors, we use a margin of safety (I prefer MOS of at least 25% for stable companies). What's your take on this? Thanks.

I have a different view. Cash flows and profits are notoriously difficult to predict with certainty even in 1-2 years into the future, much less 5-10 years. The dynamics of business could mean more competitive forces acting on the company, the industry may suffer/prosper and many external factors may also impact the company which would be unforseen (e.g. recessions, natural disasters etc). Thus, DCF (I feel) is very good for theory lessons but in a world of uncertainty, it cannot be used reliably without inputting many assumptions, most of which will surely be off-tangent far into the future. Hence, you will get a very distorted and inaccurate number. If you rely on that imprecise number and factor in say 25% margin of safety, it may not help much at all because the number may be really far off in the first place!

Hence, I don't use DCF at all during my analysis. I use a more holistic approach where I look at quantitative and qualitative factors, and "simpler" approaches such as P/B and PER as well as NAV (in certain cases) works well enough.

Investing is more "Art" than science I feel. You can churn all the numbers you want, but there are always intangible aspects of a business which may affect it that cannot be quantified. That will measure and test the skill and experience of the investor to achieve a consistent return.