Originally posted by vijayM Originally posted by 9StockPortfolio So according to my calculation i get following values for L&T 1) Discounted cash flow for next 10 years 2) Terminal value of the company at 11th year. after that company will never grow. Intrinsic value= 1) + 2) / Shares outstanding = Rs. 842 Buy Price= Intrinsic value / 50% margin of safety = Rs. 421 I will wait for L&T to come at or below of 421.. otherwise i will not buy no matter how dynamic & high growth company is and how much big it's expansion plans are. regards 9StockPortfolio     Basant ji,   I am confused with above analysis. Do you agree with this or do you agree with my analysis of L&T and HDFC bank I have given in this thread? Please solve this confusion.   regards vijayM

Hi Vijay
You should either follow Graham or Buffet.

Graham's formula you know as you have mentioned. What i have written is Buffet's way of calculating Intrinsic value of a company. He has written about that in his Owner's Manual. I follow buffet's way. because Grahams formula is straight forward which purely looks at EPS and has standard figures.

Originally posted by basant That is an individual call anyone can fix the margin of safety according to his risk reward profile but broadly your thesis is ok except that we need to tweak it abit for some unpleasent happenings. LT should fall on Tuesday post the Satyam news so the 'margin of safety' increases.

Basant sir,
If you look carefully to my valuation method, you will come to know that the rates i have chosen keeping those unpleasant happenings in mind.

L&T has grown at the rate of 30% in the past, why it should grow by that rate in future? I am trying to be as pessimistic as i can. So i assume growth of 8.5% These figures will take care of those unpleasant happenings, if i initially choose them in my calculation. if in case L&T performs more than 30% every year, i would rather a pleasant happening for me

I am destined to fail if i chose 30% growth rate for next 10 years and company fails to achieve that after couple of years. So i should chose minimum possible growth rate in the first place. as i am comfortable with 8.5% for first 7 years, then 3% for next 3 years and from 11th no growth.

Originally posted by vijayM Originally posted by basant That is an individual call anyone can fix the margin of safety according to his risk reward profile but broadly your thesis is ok except that we need to tweak it abit for some unpleasent happenings. LT should fall on Tuesday post the Satyam news so the 'margin of safety' increases.     Basant ji   The point is just not margin of safety.   I agree with margin of safety being an individual call but what about growth rate being assumed at 8.5% while LTs 10 avg historic growth rate is 17% (and 5 year avg is 40%). Further, India has huge potential for infra growth. By being too conservative in our analysis, are we not going to miss the bus? The growth rates assumed should be realistic and not optimistic or pessimistic. I give more weightage on past track record though a sense of future is essential. (For ex: infy has 56% growth record but future is not that good) Assuming 8.5% growth rate for LT is not convincing to me.     regards vijayM

Dear Vijay
You are contradicting what you have written in your signature. You are counting on L&T's good performance, which IS NOT an indicator of good prospects. You should buy L&T at a so good price that even a mediocre business will fetch you your profit.

Again, it's own perspective. i follow my own. and tell you i had calculated Suzlons price at around 70 when last year it was trading at 230..

You shouldn't be thinking of Value investing if you believe this is the last bus to catch. Patience is most important. I am too learning this. I too have made nonsense investments and burned my fingures. but now no more nonsense. If Mr. Market want me to buy from him, he should sell those stocks where i am comfortable in buying. I can wait untill he comes with really good bargains.