Focused Compounding Ep 375. Q&A: Buffett’s Best Investment, Distributor Stocks, P/E Contraction, Net Nets, etc.
Nov 18, 2022
Dive into the intricacies of investing with key insights on operating margins and the resilience of companies amidst inflation. Discover the impact of market sentiment on stock valuations, and analyze financial metrics of firms like Scott's Miracle-Gro, comparing them against industry standards. Enjoy a debate on which S&P 500 stock to hold long-term, reflecting on Buffett's principles. The conversation also tackles the complexities of social media in investment communication and the challenges of navigating financial reporting.
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Buffett's Best Investments Were Nano Caps
- Warren Buffett's best investments by annualized return have mostly been in nano-cap private companies.
- One example is Mid-Continent Tab Card Company, a highly profitable business in card printing from the 1950s.
Distributors Are Cyclical and Traded Actively
- Distributor companies like Grainger and MSC Industrial are generally mature, cyclical, and very actively traded.
- Their stock prices often move ahead of economic proofs, reflecting operational leverage in industrial production.
Evaluating Return on Retained Earnings
- Return on retained earnings helps assess capital allocation quality but can be obscured by factors like debt repayment.
- For example, Amazon's recent massive retained earnings fail to translate into proportionate profit growth due to large investments.