Course 510: Great Investors: Bill Miller
Determine Fair Value
In this course
1 Introduction
2 Start with Low Prices
3 Determine Fair Value
4 Constantly Reevaluate Fair Value

But Miller doesn't rely solely on price multiples to determine whether a stock is a good value. He also calculates what he calls a company's fair value. In order to attach a value to a business, Miller dissects companies based on how they derive revenues, then values each part separately. With AOL, for instance, he dissected the company based on the three ways that it makes money: user subscriptions, ad sales, and transactional sales (such as the sale of AOL goodies). He then measures each piece of the business against what he calls a peer industry. For example, Miller matched up AOL's user-subscription business against that of the typical cable company, which derives its revenues in similar ways. After he values each portion of a business separately, he then adds the values together and divides the sum by the number of outstanding shares to determine a company's worth per share.

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