About forty years ago Buffett experienced a Damascene conversion
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.
Wrap up on the drawbacks of CAPE. A fair level for price earnings ratios has changed over the years.
Investors are reading CAPE all wrong.
No company under consideration will even be close to scrambling to pay its creditors.
Some companies are in the seemingly fortunate position that they can maintain profit margins simply by raising prices.
Price earnings ratios are a frail and shifting basis for determining fair value. They do not force investors to think through all the factors that go into a deep assessment of fair value.
Price earnings ratios are simply a rule of thumb. They can lead you astray. But what is worse, they are becoming less and less valid with every passing year.
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.
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.