Mykie posted an Interesting Article here.
It really is an interesting article. Here are some interesting quotes from it (but it’s worth reading the whole article). It’s really an argument about not trying to buy poor companies on the cheap, hoping for a few dollar profit, but buy good companies for a long term profit.
Both our operating and investment experience cause us to conclude that “turnarounds” seldom turn, and that the same energies and talent are much better employed in a good business purchased at a fair price than in a poor business purchased at a bargain price." Buffet
Our conclusion is that, with few exceptions, when a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact." (Makes me worry a bit about CALL, except that I wouldn’t call their fundamental economics poor).
But if the market was efficient, this should not have happened! The prices of such (quality) stocks should have been bid to the point where buyers would not end up earning exceptional returns. But they did! Quality is systematically underpriced by markets over long time periods.
“More profitable companies today tend to be more profitable companies tomorrow. Although it gets reflected in their future stock prices, the market systematically underestimates this today, making their shares a relative bargain – diamonds in the rough.” Buffet
A high ratio of price to book value, a high price-earnings ratio, and a low dividend yield are in no way inconsistent with a “value” purchase." - Warren Buffett
I should specify that when he talks about a high PE ratio, he’s meaning a PE of 25, not a PE of 75.