During their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed The Biggest Winners Are Undervalued . Here’s an excerpt from the podcast:
Tobias: Yeah, I do lots of things in addition to trying to– When I look back over various backtests and look at things that have been purchased, all of the big winners always come from a point of being undervalued, which typically means EV/EBIT was 10 or less, that’s just the case. You could have got Microsoft around that kind of level in 2011.
You got Google around that kind of level like 2014, 2015 from recollection, will have another look at that, but that’s the case. I’m trying to do what I think Buffett actually does, which is he buys wonderful companies, but he only buys them when they get dirt cheap. Then, you’re going to be wrong and some turn out to be donuts, some never become wonderful again, but some go back. Then, there’s things like Microsoft. It probably really wasn’t a wonderful company. At that point, it was pretty good, so they had pretty good returns on equity, but it had that one year where it backed off the rails.
Jake: Growth stopped.
Tobias: Yeah, growth stopped. Ballmer being there, stock hadn’t done anything for 13 years, 14 years. You had to buy it at that point. Then, it becomes this super compounder software as a service dog. That’s how you get the returns, but nobody was buying then thinking that.
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