Warren Buffett does not calculate the intrinsic value and then buys at half that price. Instead, he calculates the Expected Annual Compounding Rate of Return , compares it with other available investments, and buys the best one.

Short-sightedness and the bad news phenomenon. What are these things and what do they have to do with Warren Buffett? The answer is everything.The intrinsic value of an investment is the projected annual compounding rate of the return the investment will produce. The discussion of Warren's qualitative approach is nothing new if you've heard any of Warren's talks or if you've read any of his shareholder letters. I think some of the phrases might have been lifted straight from the letters.

Please note that our article on this investment should not be considered to be a regular publication. To be able to determine your rate of return, earnings and profitability should not only be above-average, but also predictable . Tax rules can change and benefits depend on individual circumstances. Please remember loyalty bonuses received on funds held in the Vantage ISA or Vantage SIPP are exempt from tax. To figure this out, you'll need to estimate how much a company should realistically be worth five years from now, and such an estimate is only possible if a company has consistent earnings. Because of that, our companies tend to have very strong balance sheets, this focus on cash flow. And, to give you the median interest cover for companies in the fund is currently about 28 times. We've got 14 of the 27 companies with net cash and another 11 with modest gearing. So those are the sort of financial metrics we're looking at, but the key thing is management, management that acts with the owner's eye and behaves like an owner of the business, not a sort of hired hand.There are dozens of books written on the topic of value investing, and many even claim to reveal the secrets that made superinvestor Warren Buffett billions of dollars. David Clark and Mary Buffett's bestselling book Buffettology , as the name suggests, belongs to the latter category, but the reason it stands out is that it actually delivers on its promise. If loyalty bonuses are taxable then the value of our ongoing saving to you could be reduced, depending on the rate of tax you pay. The below table gives an indication of how this may affect you. Excellent businesses are often industry leaders and tend to have low debt levels, large cash flows, a strong brand name, low maintenance & running costs, high quality products & services, an increasing book value, strong earnings, shareholder-friendly management, and a consumer monopoly.

Keith Ashworth-Lord: Very rarely. I mean, our portfolio turnover currently, if you exclude where we've had to sell things, say, for meeting redemptions or whatever, it's currently 7.5%, and that's high by historic standards. So no, we don't chop and change the fund. Like Buffett, our ideal holding period is forever.

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Without some predictability of future earnings any calculation of future value is mere speculation. Without some predictability of future earnings, any calculation of a future value is mere speculation, and speculation is an invitation to folly." Buffettology Kyle Caldwell: And that rotation into value, which has benefited certain value sectors, such as oil and the miners in particular. If that were to persist for a long time, would you change your approach at all?

Fund Managers

And the one that we've got a good opportunity with, at long last, was Fevertree Drinks (LSE:FEVR). And that, you would have thought, should have gone into Buffettology, given the size of it. The reason we put it into Free Spirit and not Buffettology, was that Buffettology already owns Diageo (LSE:DGE), which is its sort of premium-brand business, and it also owns Barr (A G) (LSE:BAG), in a more sort-of general area so, we thought, well, Fever-Tree will go more naturally into Free Spirit. It doesn't have that exposure. So that's why it went in there. But in terms of Buffettology, as I say, the only thing that we've really done is and it's been very limited, is just top up one or two. We haven't put any new names, as they call it, into the portfolio. Keith Ashworth-Lord, fund manager of the CFP SDL UK Buffettology fund: Thanks for inviting me, Kyle. Kyle Caldwell: Could you give a couple of examples of companies that you already hold that you've been topping up? Kyle Caldwell, collectives editor at interactive investor: Hello and welcome to our latest Insider Interview . Today in the studio I have with me Keith Ashworth-Lord, fund manager of the CFP SDL UK Buffettology fund. Keith, thanks for coming in today.