Economic Goodwill and your business eye - what do you decide?

[Guest deepValue]

I have to (partially) agree with Kraven here. There is not enough information to make a decision. Now with more info then you can make a more considered judgement and then considering hypothetical companies is useful to improve thinking.

 

• What are the growth prospects?
  
• How do the competitive situations of the companies compare?
  
• How do the managements compare?
  
• Are these normalized earnings? Or how do they vary?
  
• Are these the owner earnings?  What is the real cash flow?
  
• etc. etc.
  

 

you get the picture; you need more information.  If B has vastly greater investment opportunities or has such a large and widening moat, i.e. a superior competitive position to A, then B is absolutely the way to go.

 

Except you don't really need this information. The point of the hypothetical is to determine whether one would prefer the high-ROA business selling at an 8% yield with no asset protection or the low-ROA business selling at a slightly higher yield and backed by assets. It's sort of silly to get hung up on details that you'd need for an actual investment.

[anders]

Thank you for all your responses.

 

I feel that I need to work on my pragmatism since the discussion went into an unwanted direction.

 

deepValue took it back somewhat but, key here is what kind of ROE vehicle you should put your focus on in today’s economic environment that probably very few has gone through during their lifetime - a world deleveraging process coupled with a money printing inflationary environment.

 

Everything is a function of opportunity cost.

 

So, if anyone could point me to a direction where I could find facts and reasoning showing that:

 

During periods of high inflation, and/or deleveraging process; High ROE companies priced at a premium, will better safeguard the purchasing power of the holding period (the risk), over modestly priced lower ROE companies with a larger asset base?

 

It would be much appreciated,

 

Best Regards

 

[Kiltacular]

Thank you for all your responses.

 

I feel that I need to work on my pragmatism since the discussion went into an unwanted direction.

 

deepValue took it back somewhat but, key here is what kind of ROE vehicle you should put your focus on in today’s economic environment that probably very few has gone through during their lifetime - a world deleveraging process coupled with a money printing inflationary environment.

 

Everything is a function of opportunity cost.

 

So, if anyone could point me to a direction where I could find facts and reasoning showing that:

 

During periods of high inflation, and/or deleveraging process; High ROE companies priced at a premium, will better safeguard the purchasing power of the holding period (the risk), over modestly priced lower ROE companies with a larger asset base?

 

It would be much appreciated,

 

Best Regards

 

You might look through this thread / page linked below.  In addition to others' comments, I did a post on this thread below that discusses and links to a lot of Buffett's comments on the subject you're asking about.

 

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/cyprus-savers-take-10-hit/msg108990/#msg108990