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New Essay: Price and Returns


racemize
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A while back there was a good discussion on returns of MKL when the P/B got relatively high:

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/mkl-markel-corp/msg246061/#msg246061

 

I started making some spreadsheets to mess with different scenarios and then ended up writing an essay about it.  Here's a link:

 

https://www.dropbox.com/s/97v3etg2xzg6ty9/2015-12-31%20Price%20and%20Returns.pdf?dl=0

 

I hope it is useful to people!

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Hi Racemize

Very nicely written and informative study as always !

 

I think one point to add would be that for these high growth companies that will do well over the long term (even if an investor pays a higher price) --- is that they have a sustained competitive advantage over the investor's time horizon.  Perhaps this is why Buffett insists on high quality businesses with a moat; such that it would be okay to pay a 'reasonable price' for a wonderful business.

 

For me I like to think of high ROE as a measure of a business with a moat.

 

Gary

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OT?

 

For me I like to think of high ROE as a measure of a business with a moat.

 

I've seen others think this way and I have thought this way in the past, but no longer do.

 

Why is high ROE a measure of a business with a moat?

 

If you insist, what is the moat of, for example, COH? (I can post probably over 100 companies with >15% historical ROE that have pretty much no moat).

 

Or are you saying that business with a moat should have high ROE? But that's not necessarily true either. BRK never had high ROE.

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OT?

 

For me I like to think of high ROE as a measure of a business with a moat.

 

I've seen others think this way and I have thought this way in the past, but no longer do.

 

Why is high ROE a measure of a business with a moat?

 

If you insist, what is the moat of, for example, COH? (I can post probably over 100 companies with >15% historical ROE that have pretty much no moat).

 

Or are you saying that business with a moat should have high ROE? But that's not necessarily true either. BRK never had high ROE.

Wouldn't ROC be a better measure?

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Wouldn't ROC be a better measure?

 

IMHO, none of the ROwhatever measures are a proof of the moat. They may help you screen for companies that may have moat, but you'll have to review them afterwards to see if that's really the case.

 

YMMV and all that.

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