Forensic Berkshire valuation under owner-earnings scrutiny
Key Questions
What mental models are emphasized in forensic Berkshire valuation?
The approach draws on Munger's latticework, PCA, inversion, and classics from Graham, Bogle, Fisher, Kahneman, and Pabrai, alongside the 1992 letter's ROIC/WACC framework.
How is AXP valued using DCF in this analysis?
AXP receives a detailed DCF assessment that highlights owner-earnings focus while critiquing EBITDA as 'bullshit earnings' and addressing market flow distortions.
What are the key decision traps discussed?
Sunk cost fallacy, diversification trap, and hindsight bias are highlighted as major pitfalls, with 14 targeted questions provided to avoid them.
Why does Pabrai stress that only 4% of stocks create wealth?
Pabrai's heuristics show that top 1% outcomes, such as a 90x return on a Turkish warehouse bought at 3% of liquidation value, drive nearly all investor wealth.
What role does the Graham Formula play here?
The Graham Formula offers a systematic method to estimate intrinsic value and identify undervaluation or overvaluation in owner-earnings terms.
How does Jain's record illustrate Munger's concentration principle?
Jain's results, with 55 of 465 stocks driving performance, reinforce Munger's view that extreme concentration in high-quality names produces outsized returns.
What bubble frameworks are applied to current markets?
Frameworks address market flows distortion, cross-ownership effects, and the risk of mistaking narrative growth for sustainable owner earnings.
Why is hindsight bias considered a key trap in valuation?
Hindsight bias distorts retrospective assessment of decisions, leading investors to overlook the uncertainty present at the time of original capital allocation choices.
Munger lattice/PCA/inversion and classics (Graham, Bogle, Fisher, Kahneman, Pabrai). 1992 letter ROIC/WACC. New: AXP DCF, EBITDA 'bullshit earnings', market flows distortion, sunk cost fallacy, diversification trap, 14 questions, bubble frameworks, Munger concentration, Jain (55/465), Graham Formula. Pabrai mental models: top 1% heuristics, 4% stocks create wealth (e.g. 90x liq-value case). Hindsight bias added as key decision trap.