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EVERYTHING VALUE INVESTORS DO TURNS on a comparison of a security’s price with its intrinsic value, which is customarily estimated as the discounted value of future cash flows. The theory of discounted cash flows (DCF) ties together current income, growth, life span, and certainty in a way that is precise and true by definition. For example, if an investment will pay $105 one year hence plus $110.25 two years hence and the proper discount rate is 5 percent, then each payment has a present value of $100, for a total of $200. If I can buy this income stream for $150, I will earn not only the fair return of 5 percent, but also $50 in present value because of the bargain purchase price. However, judgments about which numbers can validly be used to drive the model are neither precise nor true by definition. In this chapter, we estimate the value of a stock, and in following chapters, the correct cash flows to discount, the right discount rate to use, and times when prices are far from value.
Big Money Thinks Small
Joel Tillinghast
With the emphasis Confucianism places on social hierarchy, it is no surprise that Chinese are obsessed with status. Individuals within any given social circle know the precise position each holds relative to the others, and this tiny assessment is just the beginning of mental calculations that take place. Chinese understand who is linked to whom, and if one party is indebted to another, each within the group will know the nature and the extent. A holistic comprehension of social relationships helps individual members make optimal use of the social web. Psychology researcher Michael Harris Bond points out that within a network, if an individual (X) needs something from someone not well‐known to him (Y), he can ask a contact they share in common (Z) to get involved. “He is indebted to Z in this case, who can do his collecting from Y.” “Reciprocity is an exact science,” said Arthur Smith, who also pointed out that Chinese make use of a “system of social bookkeeping.” Smith was not describing the art of guanxi, a practice most often associated with government officials (and which was not referenced in English‐language texts prior to around 1980 anyway). Instead, he was commenting on the custom practiced by workaday Chinese who have no connections to power. China's system of reciprocity is complex and is dependent on that almost unfathomable cultural feature—the ability of Chinese to accurately assess the value of any favor performed. In most instances, the value is at once understood, but at other times there may be differences of opinion. Chinese will sometimes speak of “sitting down to tea,” which can be a euphemism for the elliptical chat involving the fine‐tuning of an assessment.
What's Wrong With China
Paul Midler
Regardless of where you work, be sure to also give yourself a specific time frame to keep the session a discrete challenge and not an open-ended slog.
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