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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: bruwin who wrote (61155)	7/31/2018 11:39:59 AM
From: Graham Osborn	2 Recommendations Recommended By E_K_S William Cloutier Read Replies (3) \| Respond to of 78717

Hi bruwin, if you go back to what Buffett himself actually wrote, he defined "owner earnings" or free cash flow back in the 1980s when EBITDA was still all the rage. There is no evidence in any of Buffett's writings that he performs the equity-bond analysis described in Mary Buffett's books. He uses the Gordon Growth Formula once and that's it. As far as the buyback rule is concerned, Mary Buffett focuses on the effect of buybacks on earnings - a direct contradiction of Buffett's letters. Buffett very clearly states that earnings-accretive buybacks can be value-destroying if the buybacks are above intrinsic value - and most buybacks are these days. Buffett has never written out a screen for ratios he looks for in evaluating a stock. In fact, he has stated at various times that each individual ratio is worthless by itself. My guess is he didn't want people competing with him. But when he presents case studies at various times in the letters (See's, Disney, GEICO, Washington Post, etc), he does in fact cite the owner earnings/ free cash flow multiples he paid. And they are low - typically less than 15 times. See's was around 10X, Disney around 6X, GEICO around 8X, Washington Post probably between 5-10X. Of course, assuming you are below 15-20X owner earnings the appropriate multiple depends on the growth rate and free cash flow margin of the company. Again, I challenge you to cite an instance where Buffett has paid more than 20 times owner earnings for a stock. It would also be interesting to review the multiples at which you bought the stocks in your portfolio. I would be willing to bet you paid significantly more than Buffett would have. You'd be amazed at the number of people who are willing to slap a Buffett bumper sticker on whatever they happen to be doing. I've bought many stocks over the years that didn't meet Buffett's criteria, but I am very clear on what those are.