Wednesday, March 2, 2011

March 2, 2011 - Question & Answer/Class Excercise

Group discussion questions

1) Is it more difficult to find predictable businesses today than it has been historically because the rate of change has increased within most industries?

2) Assume an argument for 7% returns over the next decade. Given that 1) profit margins are at least 30% above historical averages, (2) the ratio of prices/GDP is at least 25% above historical averages, and (3) interest rates are ~25% below historical averages, assuming mean reversion, wouldn’t one conclude that while economic earnings growth plus dividends may be 7%, that we are at an unsustainable valuation plateau?

3) Assume in the past that you would rather buy a great business at a fair price than a fair business at a great price. If the price is fair to both the buyer and the seller and the buyer does not substantially improve the business, then it would be hard to see how the buyer would obtain superior returns from such an investment if the price already discounts the quality of the business. Since you clearly look for superior returns can you explain how you buy at a price that is both fair to the seller and still leaves you room for abnormal returns?

4) What value would you personally attach to $1 received 1 year from today with 100% certainty?

5) What do you believe is the top thing that will affect our great country's competitiveness in the future and what would you advise be done to address it?

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