(Morgan Housel at FinTwit Summit 2021. Paraphrased)
One thing that has been persuasive to me over time, is that good companies always look overvalued. Always.
If we are talking about individual stocks, not about market as a whole, valuation as a tool for stock picking is overrated.
This is not contradicting anything from Graham or Buffett. This is kind of fundamental to Buffett’s career – good companies have high valuations.
That was what Munger brought to the partnership. It was different in Graham’s time and Munger realised good companies should be expensive.
If you looked at the history of Berkshire’s acquisitions that really moved the needle, they paid up for those companies. They did not buy those companies at cheap prices.
If you think Warren Buffett is a value investor, of course he is. But he was willing to pay up for for good companies.
During what percentage of Netflix’s stock history has it look cheap? The stock is up 500 fold, it is never cheap. Same as companies like Visa, Mastercard, or what not. Valuation as a tool can be difficult there. Or the nuance there is that you need to understand that good companies aren’t going to trade at 3 times cash flow, it just doesn’t happen.