Jump to content

Buffett looking for 10x pre-tax?


Recommended Posts

Guest wellmont

this is big cap Buffett. I believe he could find better pre tax yields when he wasn't managing such a big asset base. but it's a good rule of thumb for investors who think they need to always buy things dirt cheap. buy better than average companies at prices lower than the market multiple. (btw this is a cooperman tactic as well).

Link to comment
Share on other sites

"You can translate that 10x pretax into a 15x after tax p/e ratio, and that wouldn't be far off from the 100 year or so long term average of U.S. listed businesses.  Since Buffett buys quality, above average businesses, paying 10x pretax is like paying an average price for an above average business."


Makes sense!


Here Alice Scroeder saying all he ever wanted was a 15% return on day 1(Starts at 18.08):

Link to comment
Share on other sites

Here's Geoff Gannon riffing on this idea:




I liked this part:


Another Buffett quote explains why the exact price paid may not be the most important consideration:


One of the things you will find, which is interesting and people don’t think of it enough, with most businesses and with most individuals, life tends to snap you at your weakest link. So it isn’t the strongest link you’re looking for among the individuals in the room. It isn’t even the average strength of the chain. It’s the weakest link that causes the problem.


For most investors, price is the weakest link in their process. Most investors are not value investors. They simply pay too much for popular stocks. They may have other weak links. They may trade too much. They may be greedy when others are greedy and fearful when others are fearful.


Remember, you aren’t most investors. Most investors aren’t reading this blog. You are. That means price probably isn’t your weakest link.


So, don’t focus on price. Just figure out a way to make sure the price you pay is good enough. And then work on correcting the errors you've historically made.


I’ve made a lot of mistakes as an investor. I can’t think of any case where my mistake was paying too high a price relative to some measure of earnings. I can’t look at any investment that went badly and say: “Oh, if only I’d gotten that at an EV/EBITDA of 4. That would’ve solved everything.”


I’ve misjudged people. I’ve misjudged societal change. I’ve misjudged solvency. I’ve sold too soon. And I’ve tried to do too much.


Those are potential weak links for me. And so my quality assurance time is better spent carefully checking those problem areas than worrying about price.


This is not true for everyone. I’m very unlikely to get so excited about a business, I’ll pay any price for it. I’ve followed businesses I love trade publicly for 5-10 years and never touched them because of price. If you’re like me in that respect, price is something you shouldn’t obsess about.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • Create New...