Professor Glen Arnold

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 […]

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 […]

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 […]

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 […]

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 […]

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 […]

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 […]

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 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 […]

I resigned a tenured professorship to focus on investing in the summer of 2013. Since then the stock market has travelled up a bit, but the Footsie is now back where it started in 2013. But note the FTSE100 index does not take into account dividends received over the period, and it only represents large international […]