Note: this is one of the reasons I enjoy valuing every spinoff situation. Normally, you don't know the market valuation until the spinoff begins to trade, which allows you to come up with an intrinsic value ahead of time without any reference to the stock price. It can be a useful exercise.This appears to be what Buffett did with PetroChina. He loves reading reports, and you get the impression that he picked up the report one day in the spring of 2002, read through it, came up with a rough value of the business, then noticed that he could buy the stock for roughly a third of his estimated value of the business. Of course, he was able to make this simple, seemingly quick decision to buy PetroChina Company Limited (PTR - Get Report) stock because of his enormous foundation that came from the countless hours of reading and accumulating a bank of knowledge. This informational bank allows him to quickly compute the probabilities of various outcomes for each investment. But the takeaway is that the decision should be based on a few simple variables, and it should be a relatively easy decision. It's easy to know that a $100 billion company that is currently priced at $35 billion is a bargain. Indeed, a bargain it was back in 2002: Buffett purchased a stake in PetroChina Company Limited (PTR - Get Report) between 2002 and 2003 at a cost of $488 million. He sold this stake in 2007 for $4 billion, netting Berkshire Hathaway Inc. ( BRK).A BRK.B a gain of 8 times its initial investment. The capital Buffett put to work in PetroChina compounded at about 55% annually between 2002 and 2007. The quote that I referenced at the top of this post from Graham is one that I always enjoy keeping in mind when valuing businesses. The idea is not to obsess over the details, but to understand the big picture.
Buffett finished his answer to the question with another example:It's interesting to hear him say "I never made an investment that would have been avoided due to conventional due diligence."