Collection: Warren Buffett - #48 | We Don't Look at P/E, P/S and Other Ratios



[Transcript]

AUDIENCE MEMBER

Thank you. Howard Winston (PH) from Cincinnati, Ohio. One question. Are you concerned about the rising valuations on the NASDAQ market, where companies trade at multiples of revenues instead of multiples of earnings? WARREN BUFFETT

The rising value of what, did you say? AUDIENCE MEMBER

The NASDAQ market — WARREN BUFFETT

Oh. AUDIENCE MEMBER

— where they trade at 10 times revenues or more, 30 times revenues, instead of 10 times earnings? WARREN BUFFETT

Yeah. Well, we don’t pay much attention to that. Because throughout the careers Charlie and I have had in investing, there have always been hundreds of cases, or thousands of cases, of things that are ridiculously priced, and phony stock promotions, and the gullible being led in to believe in things that just can’t come true. So that’s always gone on. It always will go on. And it doesn’t make any difference to us. I mean, we are not trying to predict markets. We never will try and predict markets. We’re trying to find wonderful businesses. And the fact that a part of the market is kind of screwy, you know, that’s unimportant to us. We tried, a few times, shorting some of those things in our innocence of youth. And it’s very tough to make money shorting even the obvious frauds. And there are some obvious frauds. It really is — it’s not tough — it’s not so tough to find the obvious frauds, and it’s not tough to be right over 10 years. But it’s very tough to make money being short them, although we tried a few times way back. It’s — we don’t look at indicia from stocks in general, or from P/Es, or price-sales ratios, or what other things are doing. We really just focus on businesses. We don’t care if there’s a stock market. I mean, would we want to own Coca-Cola, the 8 percent we own of Coca-Cola, or the 11 percent or Gillette, if they said, you know, “We’re just going to delist the stock and we’re never — you know, we’ll open it again in 20 years?” It’s fine with us, you know. And if it goes down on the news, we’ll buy more of it. So we care about what the business does. Yeah.

Norton, did — why don’t you give him the microphone there?


(Source: https://buffett.cnbc.com/1996-berkshire-hathaway-annual-meeting/)

~ Please visit the site above for full video of Berkshire Hathaway Annual Meeting.

 

[YAPSS Takeaway]

1. Focus on the business and don't pay most of your attention on P/E, P/B, P/S ratios.

2. It's tough to make money from shorting obvious fraud companies.