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If you value a stock using a bond yield as a discount rate, and buy it at that price, here's what you're doing. You are investing with the assumption that you are going to earn a bond yield, i.e. 6%. May I suggest that such an investor just buy a bond? What Buffett looks for is a huge margin of safety, a 40 or 50% discount to that valuation, and also the one in a million company with no more risk than a bond. If you can get that margin of safety with conservative growth assumptions, and the business is truly special, by all means buy it. But if you can find one of those in this market, I've got a bridge to sell you. Remember, Buffett says he can't. In my view, Coke is a great company, but probably a lousy long term investment at the current price. |
