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Strategies & Market Trends : Value Investing
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To: Chid who wrote (51168)3/26/2013 10:24:50 AM
From: Jurgis Bekepuris  Read Replies (2) of 78763
 
Buffettology method is IMHO mostly crap (although I have used it for ages haha). It assumes that company can reinvest all return (or at least all return minus payouts in divvies) at current ROE. This is IMHO almost never true. So with Buffettology you are usually vastly overestimating company's growth rate. I.e. Buffettology suggests looking at companies that have at least 15% ROE and it assumes that this is reinvested into growth at the same rate. So you are getting 15%+ growth every year. Pretty much none of the Buffettology companies has shown such growth.

Note that buying back shares or paying dividend is not the same as reinvesting into growth at the same ROE. But even if you subtract divvies/buybacks, not many companies reinvest the remainder of money to produce growth at the same ROE.

In case of BBBY, I cannot believe that it will grow at 15%+ as its ROE implies. I did not however calculate what the growth rate would be if one subtracts buybacks/etc.
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