I spend the past week finding whatever free time I had to read the book, which is recommended by musicwhiz.
It is amazing how easy it is to navigate the book. The author should really be given credits for able to explain complex concepts in a clear and simple language.
First of all, I always have difficulty understanding the concept of DCF, and also is skeptical of the discount rate and growth rate assumption. After reading the book, I found the whole framework clear and meaningful.
The first chapter of the book talk about economic moats, which is really enlightening after the porter's 5 forces framework. They talk about dept and width of economic moat by looking at cashflow numbers, ROA, ROE, ROIC, and also identifying the source of Moats. Product differentiation, Brand, Cost competitiveness, Locking customers through high switching costs, high barriers to success and thus locking out competitors.
Thereafter, if you already know the basic, you can go straight into chapter 11, on how the quantitative data and qualitative numbers merged.
I found the whole concept by Pat Dorsey, while not new, is an excellent framework to anchor all the nuggets of knowledge I already have.
For example, the qualitative analysis of company will affect the assumption you made on the discount rate, and also the growth rate. Since I am investing for yield, some of the reits and trusts have rather stable and predictable cashflow, so it really made sense to make use of DCF to calculate the intrinsic value.
I will use this framework to review all my purchases to see if I overpay for any of them. But first, I would like to work backwards with SPH, I see SPH having a fair value at $4. Maybe not a price with MOS, but with $4, what discount rate would it be at, if I set growth at 1%, 2% and 3%. So that I will give a higher discount for companies with lesser moats. (although the book mention 10% as average, and higher than 10% for lesser companies, and below 10 for companies with significant moat)
I should then be able to come up with a range of intrinsic value. Watch out for my subsequent review result of the companies in my portfolio.