Comments on: Book Value - a Real Contradiction

By: Bijan

Bijan — Mon, 10 May 2010 15:18:58 +0000

I’m by no means an expert, but it seems to me that there isn’t a definite answer to the proposed question. Let’s assume we acquire both companies in their entirety and we let them grow. Which investment is more profitable should logically depend on when you intend to sell the companies: Up to a certain point in time, selling Gadget yields more profit due to its larger equity (market price is irrelevant since we could liquidate the company) but there comes a break-even point after which Widget would be a more profitable investment due to its higher ROE compared to Gadget. So, in my opinion, the answer lies within the investment objective and its horizon.

By: AD

AD — Tue, 17 Nov 2009 15:15:06 +0000

That was very interesting. I have just been reading the intelligent investor, so i can resonate with your thoughts.

By: Bootstrap

Bootstrap — Mon, 27 Apr 2009 22:11:42 +0000

Great article! This is an interesting way to illustrate the importance of investment returns. I think another thing that people miss (or forget) when they talk about Graham is that he came from a very industrial heavy era. Railroads, manufacturing, etc. The book value is very important aspect of the physical value of the company. In many of today’s industries - think software, consulting and finance - companies are much more “asset light” which makes analysis much different from his original theories.

Thanks for the thoughts,
Bootstrap

By: Timothy

Timothy — Fri, 10 Apr 2009 08:34:31 +0000

Really interesting stuff.

Now that you have told me what not to do, I hope you will also tell me what I should do.