What is Economic Franchise

Economic franchise is one of the most important investing concepts used by Warren Buffett. Companies with economic franchise are rare in the business world. They are great businesses which enjoy pricing power and could stand incapable management. In his 1991 letter to Berkshire Hathaway shareholders, Warren Buffett explained the concept of economic franchise: “An economic […]

Warren Buffett on Stock Repurchase

One usage of retained earnings we often greet with special enthusiasm when practiced by companies in which we have an investment interest is repurchase of their own shares. The reasoning is simple: if a fine business is selling in the marketplace for far less than intrinsic value, what more certain or more profitable utilization of […]

Buffett on Good Businesses

By Warren Buffett This article is an excerpt from Warren Buffett’s Letter to Berkshire Shareholders, 1987 Gypsy Rose Lee announced on one of her later birthdays: “I have everything I had last year; it’s just that it’s all two inches lower.” As the table shows, during 1987 almost all of our businesses aged in a more upbeat way. […]

Buffett’s Valuation Metrics

Question: What valuation metrics do you use? Buffett: The appropriate multiple for a business compared to the S&P 500 depends on its return on equity and return on incremental invested capital. I wouldn’t look at a single valuation metric like relative P/E ratio. I don’t think price-to-earnings, price-to-book or price-to-sales ratios tell you very much. […]

Warren Buffett’s Discount Rate

Question: When you estimate intrinsic value in capital intensive companies like McDonald’s and Walgreens where a very healthy and growing operating cash flow is largely offset by expenditures for new stores, restaurants, etc how do you estimate future free cash flow? And at what rate do you discount those cash flows? Warren Buffett: We use […]

Buffett’s Hurdle Rate

Question: What’s your investment hurdle rate? Warren Buffett: 10% is the figure we quit on — we don’t want to buy equities when the real return we expect is less than 10%, whether interest rates are 6% or 1%. It’s arbitrary. 10% is not that great after tax. [CM: We’re guessing at our future opportunity […]