Showing posts with label reasonable price principle. Show all posts
Showing posts with label reasonable price principle. Show all posts

Friday 30 December 2011

Only One Warren Buffett: Buffett's investing style is to buy great companies at reasonable prices.


Buffett is often thought of as a pure value investor, buying companies and shares only when they are dirt cheap. He does some of that, and his investments in Goldman and GE last year were an example.

But far and away Buffett's investing style is to buy great companies at reasonable prices. His simple definition of a great company is one which has a sustainable competitive advantage, like a railway, for example.
Price wise, he is not getting Burlington on the cheap. The Financial Times calls Burlinton's valuation "generous", but also says "Buffett is not a man to quibble (on price) when he sees something he likes".

Buffett imitators often try to buy shares in a company because they are cheap. Buffett himself concentrates on buying great businesses. The difference is chalk and cheese, and it's the reason why there's only one Warren Buffett.


Saturday 19 March 2011

If you find a good company at a good price, who cares what "the market" is doing?"



When buying a great wonderful company, also ensure that the stock was reasonably priced.
Even a great company can be a bad investment if you pay too much for it

In the case of Lubrizol, Mr. Buffett is paying $135 a share. That's less than 13 times last year's earnings, and 12 times forecasts for 2011

If you find a good company at a good price, who cares what "the market" is doing?

Monday 9 November 2009

"What do you think of the market?"

Perhaps the most common investment question is "What do you think of the market?"
  • To an informed group of market analysts, the question invites intellectual discussion and is very difficult to answer succinctly. 
  • In casual conversation with friends, however, the question can be like an overused pickup line at a cocktail party.

Expectations about the future are extremely important in the determination of security prices.  Even if you are a firm believer in the efficient market hypothesis, it is difficult to make informed investment decisions with complete disregard for:
  • the current level of the popular indexes or
  • the prospects for the economy. 
The Greenspan Model

The Greenspan Model is a heuristic many people use as one means of estimating the over- or under- valuation of the broad market.  The model is simple:  just subtract the S&P 500 earnings yield from the current yield on a 10-year Treasury security.

Greenspan market value = 10-year Treasury yield - S&P 500 earnings yield

When the result is positive, the market is overvalued. 

When it is negative, the market is undervalued.

According to the Greenspan model, the broad stock market was overvalued for the entire decade of the 1990s.  There were buying opportunity in 2003 and 2004, but in the mid-2005 stocks were starting to get pricey again.

As with historical PE ratios or earnings yield figures, the Greenspan model offers some historical indication of the reasonableness of the current level of the market, given estimated earnings and the interest rate environment.

Saturday 17 January 2009

REASONABLE PRICE PRINCIPLE

REASONABLE PRICE PRINCIPLE

It is never worth the value investor’s time or effort to forecast when tops and bottoms are reached.

If price is a fraction of value, value investors buy, knowing that there is a chance that the price will fall lower.

Over long periods of time the gap will narrow and often reverse.


Also read: 10 TENETS OF VALUE INVESTING

  1. MR. MARKET PRINCIPLE
  2. BUSINESS ANALYST PRINCIPLE
  3. REASONABLE PRICE PRINCIPLE
  4. PATSY PRINCIPLE
  5. CIRCLE OF COMPETENCE PRINCIPLE ****
  6. MOAT PRINCIPLE
  7. MARGIN OF SAFETY PRINCIPLE ****
  8. IN-LAW PRINCIPLE
  9. ELITISM PRINCIPLE
  10. OWNER PRINCIPLE