Business
“We won’t end the debate here but, so that we all understand, our definition is that a business is worth the free cash flow that it can be expected to generate between now and judgment day, discounted back at a reasonable rate.”
“Growth is therefore inherently part of the value judgment, not a separate discipline.”
“The wide use of valuation heuristics in the industry is quite bizarre. Their informational value, leaving aside inaccuracy for a moment, can be limited if only because successful investing is a minority sport.”
“[Valuation heuristics'] survival can probably be attributed to intellectual lazi ness on the part of the investment professional, and spin on the part of the industry’s marketing departments.”
“In our experience very few investors understand what their managers really do. We know this because fund managers are often sacked at the trough of their relative performance, and invariably just as performance is about to turn.”
“At Costco, the consumer has chosen to commit to the retailer. In other words , people shop at Costco because it is Costco, not because Costco stocks Coke.”
“Many supermarkets make their money from buying from the supplier. Costco makes money from selling to the consumer.”
“Most companies pursue scale efficiencies, but few share them. It’s the sharing that makes the model so powerful.”
“The firm is deferring profits today in order to extend the life of the franchise.”
“[The most valuable company] would have a huge marketplace (offering size), high barriers to entry (offering longevity) and very low levels of capital employed (offering free cash flow).”
“We own shares for multi-year periods and so our continued investment success has far more to do with the economics of the underlying businesses than it has to do with their last share price quote.”
“There is no reason why business values and share prices should move hand in glove. You should expect that there will be a time when prices, and Nomad’ s performance, significantly lags the performance of our underlying businesses.”
“The issue is whether, in trying to convince the client of the merits of the case, the manager convinces himself.”
“Either fund management companies are investment companies or marketing companies. Not both.”
“The fact is that sales and size are the two main detractors of long-term performance, after inability.”
“Quarterly, or even monthly, client reporting routinely marks fund management performance to market and these result snapshots acquire an extra validity, simply by virtue of their being reported.”
“The ‘Pavlovian’ association of poor short-term results with long-term incompetence and confusion between the two can lead to disastrous decisions.”