Warren Buffett: Book Value Does Not Matter When Analyzing Stocks

Many will be shocked to hear famed investor Warren Buffett saying that book value does not matter when selecting public companies to invest in, but he has actually made clear many times that earnings or free cash flow are what need to always be focused on.

[peterfmodel]

I have been working in a major IT company for many years and every report I created for business planning meeting was designed to align with my bosses gut feel. Projections are like anecdotal evidence, which can provide anything you wish.

[semsigratajs]

as Warren points himself, book value is pointless when serious amount of money is involved. I am living in a small economy country where stock market doesn't have many investment competitors and therefore P/E is not insane as in US. In US P/E of 10 is considered cheap and occasionally we can see stocks that have 100.

[prafulc]

Three important aspects:
1) your attitude towards stock market.
Chapter 8 of Intelligent Investor book.
2) Margin of safety principle
3) looking at stocks like businesses.

[semsigratajs]

let me rewatch it many times to sink it in

[chuckschillingvideos]

Book value is an accounting term. And even accountants don't use it any more (and haven't for a long, long time). If you're investing, there are countless better metrics for evaluating the value of an economic enterprise - but the bottom line is if you are investing, what matters is your belief about what is likely to happen in the future, not what has happened in the past.

[MyExcellentOpinion]

What about for book value specifically for insurance companies?

[ambully]

i thought he's big on book value as it gives you an idea of how much margin of safety a company has now i am lost

[mrretired]

The book he recommends says book value per earnings are important.

[micahdodo]

I’m confused - then how is he building out his DCFs? Obviously I get the idea of not taking the sellers projections (biased and reasons ^). However, are they themselves not making projections, is that not the base understanding of a “companies future earnings”.

[boratsmagadijev]

I just bought WBD based on book value 😵

Book value 70b, mcap of stock 22B, FCF ~6 💥💥💥

[nickstearns]

This is not true when evaluation banks stocks though correct?

[shankarbalakrishnan]

There is no value in anything if valued so do it without value❤❤🎉🎉

[importedmusic]

Buffet is using the example of a dying business growing at 5% on it's book value from the perspective of an investor with significant capital. The 5% figure is key here. For new investors with small amounts of capital to invest, turning over rocks and finding some businesses with a low P/B value can be extremely rewarding. Particularly small caps. However investing large capital into dying businesses from Buffetts situation simply does not make sense. The thing people are missing here is context - every investor is different.

[shankarbalakrishnan]

It's true came here wanting to believe in people im more busy unbelieving people❤❤🎉🎉

[SpyderRae]

So, just buy strong companies that you like and hold them.

[econusantara]

Surely buffet does not buy high price on good business

[Mike-qohg]

Huh? He'd rather look at businesses with higher multiples because they're more likely to be better companies. That's not value investing.

[brooklinsims]

I think its valuable when evaluating a REIT

[brackn]

o it does count do to it was idenity theft data breach

[GrayBlanket]

And yet Warren evaluates himself by Berkshire book value, not by Berkshire stock price. Ha!