We will sell when events materially threaten return on capital, the discount rate implicit in the stock gets too low because the valuation has gone up, or if I just have a much better idea. But if a company is doing well and continues to earn an attractive return on capital, I'm in no hurry [...]
I never pay attention to sector or industry concentrations I don't believe it's a reliable tool for diversification. Enron and the banks that lent to Enron were in entirely different sectors, but their fortunes were tied by that relationship. If I own Nestle, am I geographically diversified by holding a company that has its headquarters [...]
We'll estimate what we think earnings can be four to five years out, apply the current multiple to those earnings, and then see what the price would be if discounted back to today using a 20 percent annual rate. If the price today implies a discount rate of more than 20 percent per year, we're [...]
I love the intellectual challenge of investing there are always new questions to try to answer. But it's important to remember that you don't actually have to answer all the questions you ask yourself. It's like being able to take a test in school where you can answer any 10 questions of your choice on [...]
If I've concluded there's an issue that can be solved, I then want to know management's plan to solve it. If there's a lot of orchestration involved, meaning they can't accomplish much in the next year or two despite their willingness, that's all the better. That means management can and will do things to ameliorate [...]
A bubble is a logical impossibility, when people are investing on a premise that not only won't happen, it can't happen. The tech bubble in 2000 wasn't because stock prices were high, it was because stock prices incorporated the belief that many companies in the same industry were all going to have 20 percent market [...]
Most investment institutions define success as having a good result in each and every discrete time period, so it’s quite logical that people in those institutions look to buy stocks that will do well from the current moment in time until, say, the end of the year. As a result, favorable occurrences such as positive [...]
We’re drawn to companies with long product Lifecycles, in which the product or service will be more or less the same five years from now. If that’s not the case, we don’t believe we can with adequate confidence make reliable long- term earnings forecasts.
The key to the success of value investing is that it is basically contrarian investing. How can you buy something at a value price if it's desired by the world? Investors go out of their way to look for companies with certain cash flow characteristics, returns on assets that are stable and that have objectively [...]
In such a value-focused world, we need to be all the more contrarian in our views. It also requires additional research focus on unique, future-potential situations that might traditionally have been called growth ideas. This is just a practical response. As defined in classical Graham and Dodd terms, a bargain-basement stock has a market capitalization [...]