So many investors today focus on earnings, but I focus on assets and don’t try to predict next months’ earnings, which is a much more difficult approach to investing.
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Reliance on historical perspectives must be tempered by individual market analysis.
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Valuation is determined by the relation between a stock price and the present value of the free cash the business will generate over one’s forecast time horizon. The problem comes with assessing the future free cash flow. It is a highly subjective and uncertain exercise.
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In general, stocks are not undervalued because they go up over some short time frame. But it’s hard to make a case that they’re not undervalued if they go up year after year over long periods of time — especially when they’ve provided excess rates of return over the market.
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The worth of a business is measured not by what has been put into it, but by what can be taken out of it.
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Current earnings, future prospects, management, marketability are all factors more or less independent of assets which contribute their share to the intrinsic value.
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We live in a society that changes, so you can’t be too strict about the rules you had 40 or 50 years ago. You can’t buy stocks on the basis you did then.
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The analysis of security values is not an abstruse science. While in essence mathematical, it does not soar into the realms of calculus — in fact, it rarely gets as far as algebra.
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With stocks, you have to worry about the market. With debt, I just have to understand the contract. If my analysis is right, I’ll make money.
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We don’t get involved in all the analytical baggage of trying to figure out where a stock is going to sell. Just try to figure out what it’s worth. And I dare say all the really great investors do it the same way.
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It’s not the answers that make you good in this business, it’s the questions you ask. If you ask the right questions you will always find out more than the next guy.
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My own opinion is that the selection of individual securities is a matter partly of a special kind of judgment and insight, and partly of a good deal of security analysis training.
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If you have an opinion about the level of prices, it should be an opinion based upon your concept of the values of securities in relation to price, rather than on any prophecy or expectation of changes or of the continuance of a given moment.
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The course of the stock market will determine, to a great degree, when we will be right, but the accuracy of our analysis of the company will largely determine whether we will be right. In other words, we tend to concentrate on what should happen, not when it should happen.
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The evaluation of securities and businesses for investment purposes has always involved a mixture of qualitative and quantitative factors.
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I have always found it easier to evaluate weights dictated by fundamentals than votes dictated by psychology.
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The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’re got a very good business. And if you have to have a prayer session before raising the price by a tenth of a cent, then you’ve got a terrible business.
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If the balance sheet figures look right, I come to the next and hardest part — appraising management.
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If a company has a sound balance sheet with minimal long-term debt, good growth prospects and responsible management, then the stock should be interesting.
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My business is to find unusual companies and judge whether the price is too high.
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The inescapable fact is that the value of an asset, whatever its character, cannot over the long term grow faster than its earnings do.
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The question we ask ourselves is, ”What would we be willing to pay to own a security forever?” Then we determine whether we can buy it at a discount from that figure.
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If discounting terrific things are already in the stock, I don’t want to own it.
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I always thought if you looked at ten companies, you’d find one that’s interesting, if you’d look at 20, you’d find two, or if you look at hundred you’ll find ten. The person that turns over the most rocks wins the game.
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We consider for each of our investments not only whether a security is undervalued but why it is undervalued. If the reason is that there are uninformed or emotional sellers, we become more comfortable.
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The payoff to fundamental analysis rises proportionately with the difficulty of performing it.
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Value to some extent is in the eye of the beholder. It is very hard to pin down what the value of a future set of cash flows from a business, be it cable TV or biotechnology, is going to be.
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Finance has its anatomy and its physiology. The former is studied through the medium of balance sheets, the latter through income statements.
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Don’t buy “cheap” stocks just because they’re cheap. Buy them because the fundamentals are improving.
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Stocks do well for a reason and do poorly for a reason. Make sure you know the reasons.
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The first task of the bargain hunter is to narrow the field and separate the solid prospects from the ones that are counting on hopes, prayers, and miracles.
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The very existence of doubt creates the conditions for a big gain in the stock once the fears are put to rest. The trick is to put your fears to rest by doing the research and checking the facts — before the competition does.
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In analyzing stocks, industrials or otherwise, the speculator must constantly bear in mind that no two companies are strictly comparable. He must always be prepared to make due allowance for points of unlikeness.
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If the discernment of value could be reduced to an algorithm and taught, then everybody would be Warren Buffett.
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It becomes more and more evident that stock prices are not alone determined by high or low credit, earnings or carloadings. There is another mighty factor which cannot be charted along with the various business indices. It is how high or how low are the hearts of men and women during the given period.
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The strange revolutions wrought by time are nowhere so evident as in the securities market, where an accurate comparison of the present with the past is afforded by the price record over a period of years.
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My experience teaches me that by far the largest losses have been sustained by investors through buying securities of inferior quality under favorable general conditions.
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Knowledge is only one ingredient on arriving at a stock’s proper price. The other ingredient, fully as important as information is sound judgment.
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All my experience goes to show that most investment advisers take their opinions and measures of stock values from stock prices. In the stock market, value standards do not determine prices; prices determine value standards.
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In 44 years of Wall Street experience and study, I have never seen dependable calculations made about common stock values, or related investment policies, that went beyond simple arithmetic or the most elementary algebra.
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These chaps start out reading Graham and Dodd and I’m sure most of them are quite impressed by it in business school. I take some malicious pleasure in saying it’s the book on finance that’s been read by more people and disregarded by more people than any other that I know of.
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The difficulty of determining what any stock is really worth is very great indeed. No two security analysts will agree on the worth of a stock, or even on the definition of the word.
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The true measure of common stock values, of course, is not found by reference to price movements alone, but by price in relation to earnings, dividends, future prospects and, to a small extent, asset values.
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It is a great mistake to refine the analysis of a single year’s showing to the last possible penny, in order to build from that some substantial idea of the value of the stock; because it cannot be found in the results for any given year no matter how accurately those results were stated.
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No matter how complete and accurate an analysis may be, there is always a possibility either of some new condition arising to belie your conclusions, or else of the market refusing to act in accordance with your just expectations.
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The security analyst can only give you certain hints as to what the solution is likely to be, certain indications of a range of value rather than a specific figure, and perhaps a diffident suggestion as to where within this range he believes the probabilities of the future will lie.
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