Back to basics about free cash flow
Accounting is but an aid to business thinking, never a substitute for it
free cash flow
How to distinguish a superb value creator from an also ran
The best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return
Negative free cash flow can be desirable
Despite this problem, we consider the owner earnings figure, not the GAAP figure, to be the relevant item for valuation purposes
The best approach to choosing common stocks
“If you can look into the seeds of time,
And say which grain will grow and which will not,
Speak then to me.”
Heart of stock valuation: subtleties of free cash flow
If a company’s capital expenditures are simply maintaining the company’s position in its markets, it free cash flow may be unduly high
What you need to know about bubbles
I am not attuned to this market environment, and I don’t want to spoil a decent record by trying to play a game I don’t understand just so I can go out a hero.
Financial strength – the debt equity ratio has serious shortcomings
No company under consideration will even be close to scrambling to pay its creditors.
The hunt for wonderful businesses
Free cash flow yield can be a better indicator when return on capital (ROC) becomes a vanity metric that unduly flatters economic performance and management. We can charge management with the full cost of Economic Goodwill.
Be wary of using Return on Capital (ROC)
Superb companies produce a very high return on capital. But when substantial intangible assets don’t show up on balance sheets, the ROC numbers are unduly flattering to management.
The under-performance of value stocks explained
There is a lot of talk currently about the underperformance of value stocks compared with growth stocks over the last fifteen years. In fact, value investing has performed well against all other styles. This seeming contradiction comes from the fact that value investing and investing in value stocks are not the same thing.
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