This is what Warren Buffett means- "1 in the hand 2 in the bush"
Warren Buffett credits ESOP for the first philosopher to ponder the finance math question in 600 BC. Buffett even argues that ESOP should have kept going and described it further. Both these old legends speak in code and dont really explain clearly in my opinion.
Its taken me years to figure it out plainly, and this could be my own issue :D
But after reviewing hours of video material from Buffett, he really does keep it simple. He aims to beat treasuries and he waits otherwise. Thats it. If a stock is earning more than treasuries and he knows the business well, he bites. other wise hes happy earning the risk free rate from bonds.
If you just filtered your stock ideas by earnings yields vs treasuries, not only would you avoid unprofitable businesses, but you'd also be buying a lot of wonderful dips and look like genius. You'd miss a lot of trades too, lets be clear, because not all hot stocks make a profit. But you reduce a lot of headaches by using Buffetts Filter.
Its taken me years to figure it out plainly, and this could be my own issue :D
But after reviewing hours of video material from Buffett, he really does keep it simple. He aims to beat treasuries and he waits otherwise. Thats it. If a stock is earning more than treasuries and he knows the business well, he bites. other wise hes happy earning the risk free rate from bonds.
If you just filtered your stock ideas by earnings yields vs treasuries, not only would you avoid unprofitable businesses, but you'd also be buying a lot of wonderful dips and look like genius. You'd miss a lot of trades too, lets be clear, because not all hot stocks make a profit. But you reduce a lot of headaches by using Buffetts Filter.