Dear Diary,
Relative Value, for our Warren Buffett styled investment purposes, means relative value to the 30 year treasury bond. For example, when I began buying Harley Davidson (HOG) a few weeks ago, it was trading at about $46.00 per share. The long bond was trading at 4.78%, as I remember. Earnings per share were estimated to be $3.65 per share in 2008. Now, $3.65 divided into 4.78% is $76.359.
What this means is that I bought a share of HOG for $30.359 ($76.359 - $46.00 = $30.359) less than I would expect to get for the most stable investment I could make (the 30 year treasury bond). What the investor must ask himself or herself is whether there is any reason to believe HOG to be less reliable than an investment in the 30 year treasury bond.
I'll begin to address reliability next.
Gene
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2005, In Front of IRS Building, Washington, D.C.
Diary of a Business Investor
Gene Chapman
2005, In Front of IRS Building, Washington, D.C.
About Me
- Gene Chapman, Author
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