Quote Originally Posted by SectorSurfa View Post
hi Snoop dog, the growth factor can be looked at over say 5 years "past" growth and 1 year or 2 years forward growth combined (together from analysts averages and company if possible) or any combination of data if not for 5 years, much like looking at 5years of positive eps growth (buffett style) but on a % basis.
OK Sectorsurfa. Using the 'traditional' definition of PEG that I copied from 'www.investorwords.com' it looked like the growth used was strictly on a 'one year forwards' basis. That one year figure could be unrepresentative of a share's long term prospects, which was the heart of my concern. If you use a 'seven year average' figure, combining the last five years with a foreacst for the next two, that would alleviate my principal concern. I think we are getting into the realm of a modified PEG here though, which nevertheless might be a good thing.

One thing I did find curious about your paragraph above was you suggested risk in looking forward just 1 year, but stating you are a long term investor on the way to your investment objectives, which are most certainly "forward" looking assumptions, my question is how do you get there then?
You mentioned 'positive eps growth (buffett style)' before so perhaps you are familiar with the share valuing model espoused by his former daughter in law Mary Buffett in her many Buffettology books?

Without going into the maths here, the basic principal is that if you invest in a company that has some kind of very strong franchise concept, then even if the company has a 'bad year' there is a very high chance that the underlying strength of the business will not be affected. Thus while bad years happen and forecasting what might happen 'in any one year' might not be easy, you can be more sure that that same business will still be around and operating strongly in say 8 to 12 years time. When we invest in a business for that length of time we are more interested in the cumulative compounding effect of our investment rather than what happens in any particular year on the way. The theory is that if you select your companies wisely you can be more sure of where they will be in say ten years time, than where they will be 'next year' or the year after that. Having greater certainty about the ten year timeframe than a one year timeframe is something that only applies to a few companies, it is certainly not the norm. But if you only invest in companies that have that kind of profile, as Buffett does, then investing on a ten year timeframe can be just about the lowest risk kind of investment out there.

SNOOPY