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.
Very interesting. Thanks for sharing! FWIW, there is another variation of the worry-free sleep-good strategy that I would call the one-and-a-half-bird filter, a.k.a. 50-50. You hold a portfolio of 50% government bonds and 50% stocks, and periodically - say twice a year - you check the current USD value of each half. If stocks are now 57% and Treasuries 43%, you sell 7% stocks and buy Treasuries to bring it back into balance.
optionfarmers
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@ReallyMe lil one and a half bird filter, thats clever :))
entheogen
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Pypl and Meta were good comparisons - I'm long the former and short the latter.
optionfarmers
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@entheogen, wow no way. just based on technical strength im guessing or do you incorporate your own valuation system?. would love to hear how your did that.
BahamasX
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Thanks. Very educational and helpful.
optionfarmers
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@BahamasX, very welcome. anything stand out more than rest?
BahamasX
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@optionfarmers, Yes. Shameless excess (very high or low markets) that even shamelessness cannot justify.
FWIW, there is another variation of the worry-free sleep-good strategy that I would call the one-and-a-half-bird filter, a.k.a. 50-50. You hold a portfolio of 50% government bonds and 50% stocks, and periodically - say twice a year - you check the current USD value of each half. If stocks are now 57% and Treasuries 43%, you sell 7% stocks and buy Treasuries to bring it back into balance.