Question on How to Evaluate Business Better

**blast_investor** Sun Apr 22, 2007 11:55 pm

Question on How to Evaluate Business Better
Mosguy wrote: You seem to be a very knowledgable..I have a question. I am trying to understand how to evaluate a business better. Could you point me in the right direction? Any reading suggestions?

Thanks

Hi Mosguy,

I don't exactly know what goal you want with the words "how to evaluate business better".

BlastInvest Publication and this forum is all about "value investing" , which is all about finding cheap valuations in stock market. Wall street research analyst would do jobs of evaluating any business (for their purposes of IPO or M&A) with their fancy mathematical modelings and industrial projections, but this is not what value investors or value investing would do in real investing.

If you want to successfully start out your own to pick and invest into stocks with this value approach, this link has the book I recommend for any serious do-it-yourself value investor if you have not done:
http://forum.blastinvest.com/viewtopic.php?t=29

I believe fully understanding the theory published by Ben Graham (Buffett's mentor) is great start (possibly the only easy way of self-learning) to improve the odds of success with value investing.

**Mosguy** Mon Apr 23, 2007 6:56 am

Sorry for the mix-up, what I meant was evaluating a business searching for value in terms of finding companies with a d.c.a (durable competitive advantage) similar to W. Buffett. But I see your more B. Graham and thats fine. I just try to mix the two as best I can. I have read B. Graham "The Intelligent Investor" numerous times. It has taught me alot.

Thanks anyway
Good Investing.

**blast_investor** Mon Apr 23, 2007 9:31 am

You are right on the money.

I am more into Graham approach rather than durable competitive advantage (D.C.A.) Growth type stocks.

The main drawback of Graham approach (which was Buffett's main approach when he was millionaire decades ago) is the scaling problems. It is very hard to invest into Graham stocks with billions of dollar $ because there simply aren't that much cheap stocks that can be easily invested with that much money with high performance. The advantage of this approach is the simplicity and high performance of the method, and that was why Buffett got rich by this approach alone decades ago.

However, in my opinion, individual investors and small funds should have no difficulty in Graham approach with size below $ billion range. Buffett or other big funds may have problems of fund size so that Buffett has to rely more on durable competitive advantage approach recently. It is a lot more easier to deploy billions of $ into durable competitive advantagious (growth) stocks than Graham value picks. The drawback of D.C.A is performance. Buffett's recent performance in last 1-2 decades was worse than his performance 4-5 decades ago.

Both styles are slightly different in approaching value in investing, both are great style of value investing.

Mosguy wrote: Sorry for the mix-up, what I meant was evaluating a business searching for value in terms of finding companies with a d.c.a (durable competitive advantage) similar to W. Buffett. But I see your more B. Graham and thats fine. I just try to mix the two as best I can. I have read B. Graham "The Intelligent Investor" numerous times. It has taught me alot.

Thanks anyway
Good Investing.

**Mosguy** Mon Apr 23, 2007 1:00 pm

Seems to me W. Buffett held on to the two most important principles from Graham- Mr. Market Theory and MOS (Margin of Safety Principle). And just found a new way to apply it. In any case, we are talking about two master investors. Of whom I could only wish for half there success.

I try to be more Graham than Buffett as well. Graham approach offers more opportunities.

Blast, do you look for value all over the globe?

Good Investing

**blast_investor** Mon Apr 23, 2007 1:28 pm

Here is link to recent Buffett's interview on his opinions of Graham approach and fund size issue:

http://www.fool.com/community/pod/2005/050713.htm

From above article, we can clearly see that Buffett still hold on to full Graham's approach even as of today.

But of course, fund size limitation caused Buffett to change and adapt to move away from exact approach of Graham without change of core value concept.

**Mosguy** Mon Apr 23, 2007 8:01 pm

Great Article thanks.