Buffett has this sweet spot of businesses between, let's say about nine times earnings to about 13 times earnings. The inverse of low PE or low price of free cash flow ratio that Buffett is looking for is a high earning yield or a high free cash flow yield. Unlike a bond coupon that is fixed, hence the term fixed income, if we're investing in growing businesses, then the coupon is going to grow. And so when you pay lower multiples, a lot of bad news is already priced in.
Can you think of any stocks in the S&P 500 that will have higher earnings five years from now? Are you 90% confident in your prediction? If you have a good answer to these questions, then you might be able to start investing like Warren Buffett. Motley Fool Senior Analyst John Rotonti joins Ricky Mulvey to discuss: - What one of Buffett’s lieutenants revealed about Berkshire’s stock-buying framework - How investors can use the framework, and why so few stocks fit - One company that may fulfill Berkshire’s criteria Companies discussed: BRK.A, BRK.B, KO, USB, NVR Interview with Todd Combs - https://investmentmanagementinsights.substack.com/p/graham-and-dodd-annual-breakfast Berkshire’s 1986 Letter to Shareholders: Chairman's Letter - https://www.berkshirehathaway.com/letters/1986.html Host: Ricky Mulvey Guest: John Rotonti Engineer: Tim Sparks
Learn more about your ad choices. Visit megaphone.fm/adchoices