The function of the margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future.
If the margin is a large one, then it is enough to justify the assumption that future earnings will roughly approximate those of the past in order for an investor to feel sufficiently protected against the vicissitudes of time.
| High | $4,533.34 |
| Median | $3,200.00 |
| Low | $2,650.00 |
| Average | $3,247.34 |
| Current Price | $2,137.53 |
| P/E Ratio (TTM) 19.44 |
| P/E Ratio (including extraordinary items) 20.99 |
| Price to Sales Ratio 7.62 |
| Price to Book Ratio 7.62 |
| Price to Cash Flow Ratio 21.42 |
| Enterprise Value to EBITDA 15.74 |
| Enterprise Value to Sales 5.31 |
| Total Debt to Enterprise Value - |
| Total Debt to EBITDA 0.16 |
| EPS (recurring) 101.46 |
| EPS (basic) 113.88 |
| EPS (diluted) 112.20 |
| Revenue/Employee - |
| Income Per Employee - |
| Receivables Turnover - |
| Total Asset Turnover 0.76 |
| Current Ratio 2.93 |
| Quick Ratio 2.91 |
| Cash Ratio 2.17 |
| Gross Margin +56.91 |
| Operating Margin +30.51 |
| Pretax Margin +35.24 |
| Net Margin +29.53 |
| Return on Assets 22.40 |
| Return on Equity 32.07 |
| Return on Total Capital 29.62 |
| Return on Invested Capital - |
| Total Debt to Total Equity - |
| Total Debt to Total Capital - |
| Total Debt to Total Assets 7.94 |
| Interest Coverage - |
| Long-Term Debt to Equity - |
| Long-Term Debt to Total Capital - |
| Long-Term Debt to Assets 0.07 |
The wild swings in the stock market may have you stressed about your investments.
Yet if you took a page from self-made billionaire Warren Buffett, you shouldn’t be too concerned about daily market moves.
“You’ve got to be prepared when you buy a stock to have it go down 50% or more and be comfortable with it, as long as you’re comfortable with the holding,” the Berkshire Hathaway CEO said during the company’s 2020 annual shareholders meeting.
The 91-year-old, who is worth $109.2 billion according to Forbes, has been called the greatest investor in the world.
In fact, of the top 10 billionaires, Buffett is the only one who gained wealth so far this year, according to the Bloomberg Billionaires Index.
When Buffett looks at the stock market he sees companies instead of stocks.
“We ignore 99.9% of what we see, although we run our eyes over them. And then every now and then we see something that looks like it’s attractively priced to us as a business,” Buffett said at Berkshire Hathaway’s 2008 meeting.
If you want to take a page from Warren Buffett, here are some of his key principles you can integrate into your investing practice.
Think long term
When Buffett buys stocks, he’s in it for the long haul.
“If there is one quality that you need in order to invest like Warren Buffett it is patience,” said Berkshire Hathaway shareholder Robert Johnson, professor of finance at Creighton University’s Heider College of Business in Omaha, Nebraska, Buffett’s hometown.
You’ve got to be prepared when you buy a stock to have it go down 50% or more and be comfortable with it, as long as you’re comfortable with the holding.
Warren Buffett
BERKSHIRE HATHAWAY CEO
Buffett has driven home this philosophy over the years.
“When we buy a stock, we would be happy with that stock if they told us the market was going to close for a couple of years. We look to the business,” he has said.
He compared it to buying a farm.
“You would not get a price on it every day and you wouldn’t ask whether the yield was a little above expectations this year or down a little bit. You’d look at what the farm was going to produce over time.”
Invest in what you know
Buffett has famously said to “never invest in a business you cannot understand.”
“You have to learn how to value businesses and know the ones that are within your circle of competence and the ones that are outside,” Buffett told CNBC’s Becky Quick during an interview on “Squawk Box” in 2019.
That doesn’t mean he thinks you have to be an expert on every company.
Investors need to have the “ability to correctly evaluate selected businesses,” he wrote in his 1996 annual shareholders’ letter.
Focus on good companies
Buffett likes to focus on companies that have a good business model that is sustainable over a very long period of time, Johnson said.
It has to be at the right price. Buffett is well known as a value investor, which is someone who chooses equities that seem to be trading for less than their intrinsic value.
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price,” he famously wrote in his annual letter to Berkshire Hathaway shareholders in 1989.
Keep learning
Buffett is a big believer in continuously learning throughout life.
By the time he was 10 years old, he read every book on investing in the Omaha public library and many of them he read twice.
And he hasn’t stopped.
“l was in his office several years ago. His desk is just piled with books and they are books on very many diverse topics,” Johnson said.
Buffett once said he reads about 500 pages a week.
“I remain very big on the idea of reading everything in sight,” Buffett said at the 2007 Berkshire Hathaway meeting.
PUBLISHED TUE, JAN 25 20223:43 PM
Michelle Fox
"You have to understand accounting and you have to understand the nuances of accounting. It's the language of business and it's an imperfect language, but unless you are willing to put in the effort to learn accounting - how to read and interpret financial statements - you really shouldn't select stocks yourself."
Warren Buffett
History of investment analysis
Benjamin Graham
Benjamin Graham had adopted early bond analysis techniques to common stocks analysis.
He focused primarily on determining a company's solvency and earning power for the purposes of bond analysis.
Graham never made the distinction between a company that held a long-term competitive advantage over its competitors and one that didn't.
He was only interested in whether or not the company had sufficient earning power to get it out of the economic trouble that sent its stock price spiraling downward.
He wasn't interested in owning a position in a company for ten or twenty years. If it didn't move after two years, he was out of it.
Warren Buffett
Warren Buffett discovered, after starting his career with Graham, the tremendous wealth-creating economics of a company that possessed a long-term competitive advantage over its competitors.
He realized that the longer you held one of these fantastic businesses, the richer it made you.
While Graham would have argued that these super businesses were overpriced, Warren realized that he didn't have to wait for the stock market to serve up a bargain price, that even if he paid a fair price, he could still get superrich off of those businesses.
Warren developed a unique set of analytical tools to help identify these special kinds of businesses.
His new ways of looking at things enabled him to determine whether the company could survive its current problems (recall Washington Post at the time when he first bought into this company).
Warren's way also told him whether or not the company in question possessed a long-term competitive advantage that would make him superrich over the long run.
Warren's two simple and stunning revelations:
(1) How to identify an exceptional company with a durable competitive advantage?
(2) How to value a company with a durable competitive advantage?
What we must also have is a plan for HOW MUCH to invest n the stock market in the first place.
It makes sense for almost everyone to have a significant portion of their assets in stocks. Just as important, few people should put all their money in stocks. Whether you choose to invest 80% of your savings in stocks, or 40% in stocks depends in part on individual circumstances and in part on how human you really are.
An investment strategy where 100% of your assets are invested in the stock market can result in a drop of 30%, 40% or even more in your net worth in any given year (of course, many people learned this the hard way in recent years). Since most of us are only human, we cannot take a drop of this size without opting for survival. That means either panicking out or being forced to sell at just the wrong time
In fact, if we start with the premise that we cannot handle a 40% drop, then putting 100% of our money in the stock market is a strategy that is almost guaranteed to fail at some inopportune time down the road.
Obviously, if we invest only 50% of our assets in stocks, a market drop of 40% would result in losing "only" 20% of our net worth. As painful as this still might be, if we maintain the proper long-term perspective, some of us might be better able to withstand a drop of this size without running for our lives.
Whether you choose to place 80% of your assets in stocks or 40%, that percentage should be based largely on how much pain you can take on the downside and still hang in there.
Pick a number. What percentage of your assets do you feel comfortable investing in stocks?
The important thing is to choose a portion of your assets to invest in the stock market—and stick with it! For most people, this number could be between 40 percent and 80 percent of investable assets, but each case is too individual to give a range that works for everyone.
Whatever number you do choose, though, I can guarantee one thing: at some point you will regret your decision. Being only human, when the market goes down you will regret putting so much into stocks. If the market goes up, the opposite will happen—you’ll wonder why you were such a chicken in the first place. That’s just the way it is. (Actually, according to behavioral finance theory, that’s just the way you is!)
So here’s what we’re going to do. Against my better judgment, we’re going to give you some rope to play with. Once you pick your number, let’s say 60 percent in stocks, you can adjust your exposure up or down by 10 percent whenever you want. So you can go down to 50 percent invested in stocks and up to 70 percent, but that’s it. You can’t sell everything when things go against you, and you can’t jump in with both feet and invest 100 percent when everything is rocking and rolling your way. It’s not allowed! (In any event, doing this would put you in serious violation of our plan!)
Small investors will have a huge advantage over professionals
And here’s the big secret: if you actually follow our plan, small investors will have a huge advantage over professionals—an advantage that has only been growing larger every year. Of course, you would think that with all the newly minted MBAs heading to Wall Street each year, the proliferation of giant hedge funds over the last few decades, the growth of professionally managed mutual funds and ETFs, the increasingly widespread availability of instant news and timely company information, and the mushrooming ability to crunch massive amounts of company and economic data at an affordable price, the competition to beat the market would actually be growing fiercer with each passing year. And in some ways it is. But in one important way, perhaps the most important, the competition is actually getting easier.
The truth is that it is really hard to be a professional stock market investor today.
It’s just that it’s really hard to look at returns every day and every month, to receive analysis every month or every quarter, and still keep a long-term perspective. Most individual and institutional investors can’t do it. They can’t help analyzing the short-term information they do have, even if it’s relatively meaningless over the long term. On the bright side, as the market has become more institutionalized and performance information and statistics have become more ubiquitous, the advantages for those who can maintain a long-term perspective have only grown.
For those investing in individual stocks, the benefits to looking past the next quarter or the next year, to investing in companies that may take several years before they can show good results, to truly taking a long-term perspective when evaluating a stock investment remain as large, if not larger, than they have ever been.
Remember from early in our journey, the value of a business comes from all the cash earnings we expect to collect from that business over its lifetime. Earnings from the next few years are usually only a very small portion of this value. Yet most investment professionals, stuck in an environment where short-term performance is a real concern, often feel forced to focus on short-term business and economic issues rather than on long-term value. This is great news and a growing advantage for individual and professional investors who can truly maintain a long-term investment perspective.
This focus on the short term by professionals is also a huge advantage for individual investors
Luckily, since it’s particularly hard for most nonprofessionals to calculate values for individual stocks, this focus on the short term by professionals is also a huge advantage for individual investors who follow an intelligently and logically designed strategy. Because value strategies often don’t work over shorter time frames, institutional pressures and individual instincts will continue to make it difficult for most investors to stick with them over the long term. For these investors, several years is simply too long to wait.
Hanging in there will be tough for us, too. But as individual investors, we have some major advantages over the large institutions. We don’t have to answer to clients. We don’t have to provide daily or monthly returns. We don’t have to worry about staying in business. We just have to set up rules ahead of time that help us stay with our plan over the long term. We have to choose an allocation to stocks that is appropriate for our individual circumstances and then stick with it. When we feel like panicking after a large market drop or ditching our value strategy after a period of underperformance, we can—but only within our preset limits. When things are going great and we want to buy more, no problem, we can—we just can’t buy too much.
So there it is. We have a strategy that beats the market. We have a plan that will help us hang in there.
And, as individual investors, we have some major advantages over the investment professionals. All we need now is a little more encouragement. Perhaps a final visit with Benjamin Graham will help push us on our way.
In an interview shortly before he passed away, Graham provided us with these words of wisdom:
The main point is to have the right general principles and the character to stick to them.… The thing that I have been emphasizing in my own work for the last few years has been the group approach. To try to buy groups of stocks that meet some simple criterion for being undervalued—regardless of the industry and with very little attention to the individual company.… Imagine—there seems to be practically a foolproof way of getting good results out of common stock investment with a minimum of work. It seems too good to be true. But all I can tell you after 60 years of experience, it seems to stand up under any of the tests that I would make up.
After so many years, we still have an opportunity to benefit from Graham’s sage advice today.
We now have a great plan for how to invest in the stock market.
Finally, for the portion of our money that we choose to invest in the stock market, we should have a better idea
