A letter from Miller to Jim clay Mei

Jim:
The leeg Mason value-added Trust Fund I operate may be the culprit in your discussion about value-added/growth issues because our company is listed in the Value-Added Index column in the investor business daily, and held a large number of shares of Dell and US online (we did not hold shares of Lucent and Microsoft ).
Of course, when we bought Dell for $4 in 1996 and sold it for $6 or more, the return on capital reached 4.
In 0%, no one would think that we are evil. When we bought us online for $15 per share in the second half of 1996, many people thought we were dummies. They believe that US online is about to collapse due to the emergence of the Internet and Microsoft, or due to poor management. (Note: Due to the subsequent stock allotment, the adjusted price of Bill is much lower, Dell is only $2 per share, and us online is only $7.5 per share .) The question is how to estimate their value? The estimation method is simply to look at their price-to-income ratio and the price-to-book ratio in a deeper level.
The answer to the problem lies in the overall investment strategy. Many fund managers make up their capital every year to make a big conversion and frantically pursue profitable stocks. In contrast, our 11% turnover rate close to the Ice Age is extraordinary. Finding a good company, taking advantage of low prices, holding large shares, and long-term possession was a rational investment strategy in the past.
In speculative markets, long-term shareholding is extremely rare, but this is exactly what we do. We will not easily drop the stock of an enterprise because of the stock increase or the passage of time. We have no reason to do this.
A better answer is that price and value are two completely different and independent variables. As Buffett pointed out, there is no theoretical difference between value-added and growth; any value-added investment is the result of the current value of the enterprise's future cash flow.
Value-added and growth cannot be completely split at the combination of points. These two terms are mainly used by investment consultants to divide fund managers and inform their customers. They represent the characteristics of stocks but not the characteristics of companies. As Charles Munger said, it is "nonsense" to separate the two ".
Since 1982, the elimination rate of fund managers in the market has reached 91%. This is an efficient number for me, because the computer is no longer a rare resource, and databases are also available everywhere. Based on the financial stock Factor Analysis (price-to-income ratio, price-to-par-value ratio, price-to-cash flow ratio, etc.) can also be checked by computer, but they cannot lead to brilliant performance.
　
The analysis of stock element combinations seems to have mastered the secret of winning, but it will soon disappear. The secrets of extraordinary performance do not exist in any algorithm.
Any superior portfolio can be successful in a certain period of time because it has a wrong price. The market estimates the future number incorrectly. We compare the market valuation of the company and our own valuation of the company, and use a combination of multiple elements to find out the price mismatch.
We should first calculate the financial content, then turn to the private market price analysis, and analyze all the purchase leverage to seek the close amount. Of course, we should also calculate the cash flow discount model.
The stock price evaluation is a dynamic process rather than a static process. When we first valued American online, its transaction value was around $15 and we thought it was about $30. We now estimate that its shares are between $110 and $175, which is based on the discounted conservative cash flow. If our statement about the long-term economic model is correct, the number may be higher.
When we buy General Motors or chase stocks-the old and easy-to-understand performance stocks, or when we buy long-term low-price stocks (toys)
"R" Us) and Western data (Western
Digital) shares, no one raised any objection to our practice, because we purchased them during their large-scale loss. The problem was that when we purchased Dell and US online, they began to oppose us.
What they oppose most is that we didn't throw them when Dell's stock rose to $8 as other value-added merchants did. Historically, the trading revenue of computer shares has been between $6 and $12, so when the profit of Dell shares exceeds 1
At $2, it is no longer a value-added stock.
Seeing that people are so easy-minded, they only use the financial method for calculation, and then linearly convert the results and make decisions based on this, we feel a little gloating. It is much simpler than the actual estimation of the enterprise value. It also allows us to perform more thorough analysis for our customers and get more accurate results.
We own shares of GM and AOL for the same reason: the market estimates for the price are incorrect. Both companies are trading at a price lower than their potential intrinsic value.
Good wishes
Miller