“Most businesses consume cash. Very few ever create it for the security holder on a regular basis.” — Martin J. Whitman, founder of Third Avenue Management Download the Slide Deck (PDF) : Direction_of_Absorption Listen to the deep-dive discussion – The Direction of Capital Absorption I. The Flow Between Two Reservoirs Every business is…
Tag: Growth Stocks
Growth stocks compound their returns at a high rate
The Gap, the Gift, and the Guarantee – What You Actually Buy When You Buy a Great Business
“Price is what you pay. Value is what you get.” — Warren Buffett Listen to the deep-dive discussion – The Gap the Gift and the Guarantee Download the Slide Deck (PDF): The_Financial_Architecture I. The Floor The traditional approach to valuation projects growth—estimates future cash flows, discounts them at a rate that blends the risk-free…
Why Berkshire Is Right About Google – The Alphabet Reinvestment Thesis
“I feel like a horse’s ass for not identifying Google. We screwed up.” — Charlie Munger Listen to the deep-dive discussion – Why Berkshire Hathaway Bet on Alphabet AI Download the Slide Deck (PDF) The_Alphabet_Architecture I. The Decision Worth Defending When Berkshire Hathaway committed $10 billion to Alphabet at roughly $350 per share,…
Coca-Cola vs Moody’s – What Buffett’s Portfolio Reveals
Listen to the deep-dive discussion – Why Moody’s beats the Coca-Cola moat (19:37 min) “We lived in a torrent of money, and we were constantly deploying it.” — Charlie Munger, Berkshire Hathaway Annual Meeting, 2016 What if the torrent deployed itself? I. Two Holdings, One Portfolio Warren Buffett has held Coca-Cola since 1988 and…
Disruptive Innovation and the Return on Capital Imperative
This post explores the Late Harvard business professor Clayton Christensen work on disruptive innovation (The Innovator’s Dilemma: When new technologies cause great firms to fail), which could serve as useful mental model for the equity investor. Disruptive Innovation: The Source of Real Growth Disruptive innovation is an ongoing process inherent to capitalism that occurs whenever…
Share Buybacks, Dividends and Optimal Capital Allocation
A company repurchasing its own shares may suggest that it is no longer able to reinvest its excess cash at high rates of return. Take IBM in the past ten years. Its share repurchase program, even at a so-called “deep discount”, was not necessarily welcomed as it was perceived as potentially impeding innovation and long…
Growth and Multiple Expansion: the “Twin Engines” of 100-Baggers
Stock price rises over time based on the quality of earnings and on how long those earnings can be reinvested at high rates of return. A business generating consistent high ROE and growth in revenue and book value compounds its re-invested earnings at a rate of return at least equal to its ROE, assuming no…
Great Businesses Compound Earnings At High Rates
GREAT BUSINESSES COMPOUND THEIR EARNINGS AT HIGH RATES The characteristics which growth stocks enjoy were studied by security analyst Thomas Phelps in a book published in 1972 entitled 100 to 1 in the Stock Market. $10,000 compounding at 26% for 20 years turns into $1,000,000. How high the price of a stock rises over time…