Hello everyone!
I have read "The Warren Buffett Way" by "Robert Hagstrom". In the book there is a chapter where they (I guess Robert) try to recapture how Warren Buffett thought when he bought huge amounts of shares in CocaCola, in 1998, using Buffetts prefered way of calculating a companys intrinsic value. In the book they are displaying a table that shows how the calculation is made. The header says "The Coca Cola Company Discounted Owner Earnings Using a Two-Stage Dividend Discount Model". I have tried to figure out the logic of this model but I have failed in one respect. First they calculate the intrinsic value based on the proposed future earnings of the ntext ten years, using the "Discounted cash flow" model. Fine. Next they use the "Gordon Model" to calculate the intrinsic value over the rest of the companys life time and discount it back to today. Fine. Then they add up the two numbers they get for each calculation and says that this is the intrinsic value for Coca Cola in 1988. Also fine. What I dont understand is why the accumulated owner earnings up until 1998 is not included (should be a considerable amount?!). Now, I dont know if any of you have read the book, but maybe someone can follow the logic (or the lack thereoff) and see what I am missing??
Thanks in advance.
