Hi Mel!

> I'm familiar with the Buffet method --
> sorta. They have calculators on quicken.com
> that will do an analysis of the stock with
> the Buffet method.

> I confess that formulas make my lil'
> eyeballs cross.

Wow, I went over to have a look. This is the approach I use....

(That is, I went to www.quicken.com , entered a symbol , then clicked on "Evaluator" on the left hand side of the page, then clicked on "5. Intrinsic Value".)

This looks like a great tool! I'm going to go through their formula to see how it matches (or differs) with what I use.... At my initial inspection, it looks very similar....

Here's how you can use this right off the bat. After you've gotten to the "Intrinsic Value" section, check out all the stocks you are considering buying. What you're looking for are stocks whose "intrinsic value" is significantly greater than their "current price." (I like the "intrinsic value" to be at least twice the current price, which gives you a nice margin of error in case your calculations are wrong.)

By the way, these stocks are not easy to find! But.... once you've found one, you could have a great growing stock!

You may find many stocks have NO "intrinsic value" -- these are the companies which aren't making any profits! I avoid those companies like the plague! (That's why I didn't get caught in the "internet bubble" -- because almost all those companies had little or no intrinsic value.)

For example, if you put in "LU" (Lucent Technologies) you'll find it has no "intrinsic value". That's because Lucent has been making losses rather than profits lately. YHOO (Yahoo!) also has no "intrinsic value" since they've been making losses lately too.

BUT... Type in "PPD" (Pre-Paid Legal). You'll find its "intrinsic value" is currently more than FOUR TIMES its current price! I consider PPD to be ridiculously undervalued. I bought shares in it a few months ago at $16.20 . It's currently $20.91 , so I've already made a 29% profit. But I believe it's still worth more.

Thanks Mel, that's an interesting web page.... I'm going to evaluate it further (especially their formula) just to see exactly how it compares with what I do. But as an initial way to go, it looks pretty good. :)

By the way, I think after you've found a stock with a high intrinsic value compared to current price, you should go further. You should get a copy of their annual report which is often available from their web site -- look under "Investor Relations" or "About the Company" -- some heading like that. Usually you can download it as a PDF file.

I believe you should understand the company before you invest in it. So read through the annual report, to try to understand what the company does.

Especially, try to understand why the company is growing (if it is). Is this growth sustainable for the next five or ten years? If it is, that's good.

Does the company have a monopoly, or a strong brand name, which enables it to earn above average profits? If so, that's another good sign.

Sometimes there may be legal problems. (PPD is having some legal problems, which makes it a more complicated stock to look at, but I don't believe that these problems affect PPD's underlying business.)

Thanks Mel! Great site! :)

> I like the takeover announcement idea, and
> will start looking at the news to see if I
> can spot something (and mention it here so
> we can all 'practice' and learn.)

That'd be great! I'll see what else I can find out too.... :)

> I did learn to take financial advisors'
> advice with a grain of salt, but I need to
> set 'sell' limits on stuff. My first
> purchase (recommended in a magazine) was
> Schwab. And when it dropped to 40% of my
> purchase price, I said 'enough is enough'
> and sold it. I think it's a decent company,
> but I don't want that money tied up in a
> value-losing stock now.

I haven't looked at Schwab, so I don't know much about their business (how they're going, etc.). I've found that if you look at intrinsic value, it's hard to go wrong. The main thing which can go wrong are legal cases -- they can make a stock's price drop like a bullet, and unfortunately they're not always predictable. (PPD is so cheap right now because of a legal case, so you have to take this into consideration before purchasing. My opinion is that the legal case will not affect PPD's underlying business, but you have to look into the issue and take it into consideration.)

- Dien