There are three steps to the Expectations Investing process, which are very logical… number one is understand price implied expectations. What we’re doing is using a sound cash flow model, so we’re mimicking first principles. But in this case, we’re not forecasting what we believe. We’re essentially asking, “what is priced into today’s stock?” Now we can be guided by things like consensus forecast, there’s certainly a component of art in this. But you’re basically saying, “what do I need to believe to justify today’s stock price?” By the way, this is best done with you being agnostic…the second step is identifying expectations opportunities and that’s going to have a couple components. The first is understanding historical results, then you’re going to do your strategy analysis and… figure out which trigger matters the most… and then the final step is just make buy and sell decisions. If you’re doing that last step properly, you’re going to have these outcomes and probabilities associated with them that allows us to estimate expected value and that allows us then to buy at a discount to that which is where we get margin of safety.
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