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Strategies & Market Trends : Value Investing

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To: Jurgis Bekepuris who wrote (45496)	11/16/2011 3:10:27 AM
From: J Mako	Read Replies (2) of 78673

Yes, yes, yes, I'm aware of this pitfall. That's why I said "as long as the mgmt doesn't do stupid expansion (i.e. growth) of which return will still be below their cost of capital" which you've conveniently cut out. :-) Correct me if I'm wrong: Company 1 - ROE 8% - P/B 0.5 Company 2 - ROE 16% - P/B 1 When both company pay out all the earnings as dividends, both companies don't grow and both give the investor the same return. So, high ROE is important when it's a growing company. If I'm correct, we are on the same page. p.s. Of course, there are a lot of caveats in reasoning with ROE and growth. I have reservation on the assumption that Growth = Retention Rate x EPS x ROE. p.p.s. I still haven't received my copy of Buffettology... I'm definitely at a disadvantage here given that you've read it but I haven't. :-p

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