Tag Archives: Munger

How to Read and Get SMARTER

Go Straight

Ask to be on his email list for incredibly insightful articles. dahhuilaudavid@gmail.com
The Buffett Formula — How To Get Smarter from http://www.farnamstreetblog.com/ 

“The best thing a human being can do is to help another human being know more.”
— Charlie Munger

“Go to bed smarter than when you woke up.”
— Charlie Munger

Most people go though life not really getting any smarter. Why? They simply won’t do the work required.

It’s easy to come home, sit on the couch, watch TV and zone out until bed time rolls around. But that’s not really going to help you get smarter.

Sure you can go into the office the next day and discuss the details of last night’s episode of Mad Men or Game of Thrones. Sure you know what happened on Survivor. But that’s not knowledge accumulation, it’s a mind-numbing sedative.

You can acquire knowledge if you want it.

In fact there is a simple formula, which if followed is almost certain to make you smarter over time. Simple but not easy.

It involves a lot of hard work.

We’ll call it the Buffett formula, named after Warren Buffett and his longtime business partner at Berkshire Hathaway, Charlie Munger. These two are an extraordinary combination of minds. They are also learning machines.

Read more every day here: http://www.farnamstreetblog.com/

 

Commenting on what it means to have knowledge, in How To Read A Book, (PLEASE follow that link!) Mortimer Adler writes: “The person who says he knows what he thinks but cannot express it usually does not know what he thinks.”

Can you explain what you know to someone else? Try it. Pick an idea you think you have a grasp of and write it out on a sheet of paper as if you were explaining it to someone else. (see The Feynman Technique and here, if you want to improve retention.)

Nature or Nurture?

Another way to get smarter, outside of reading, is to start surround yourself with people who are not afraid to challenge your ideas.

Like what you’re reading? Join thousands of others and get a free weekly update via email.

“Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.” — Charlie Munger

Read more posts on Farnam Street on:
 • 

LTStockPrices

Progress, changes in the index and more money in circulation.

Have a good weekend.  I highly recommend, HOW TO READ A BOOK by Adler.

You will become a better analyst/investor. Plus, I need everyone here to become a whole lot smarter the next time I pose a “brain crusher.”

Investor Presentations and Munger Mash

Munger

Everything Charlie Munger_A Compendium of Articles

Robotti:

He is a deep value investor in small caps.

VII_Aug2011_BobRobotti and Robotti-ValueInvestingCongress-100212

Ghazi:

VII_Oct2010_Ghazi and Ghazi-ValueInvestingCongress-100112  Learn more by downloading the annual reports (3 years) and proxies, study and try to value the company. THEN read his presentation. Do you agree/disagree? I bet less than 1 in 10,000 people would make the effort. While I bet some “investors” bought LAYN on their crackberries/IPhones after a few words by the speaker. You can do better. Make the effort and go the extra mile.

More

VII_May2011_LloydKhaner and Khaner-ValueInvestingCongress-100212

VII_March2007_BarryRosenstein and Rosenstein-ValueInvestingCongress-100112

VII_Feb2007_AlexRoepers and Roepers-ValueInvestingCongress-100212

VII_Dec2010_JeffUbben and Value Investing Congress presentation-Tilson-10-1-12

Bill-Ackman-Value-Investing-Congress-100112

Buckley-ValueInvestingCongress-100112

Gottfried-ValueInvestingCongress-100212  (obscure micro-caps)

Mauldin-ValueInvestingCongress-100112

McGuire-ValueInvestingCongress-100112

Tongue-ValueInvestingCongress-100212

VII_March2005_DavidEinhorn

Why the Study of Competitive Advantage and HAPPY NEW YEAR

Life is my college. May I graduate well, and earn some honors.” –Louisa May Alcott, American writer

I will be posting almost exclusively on strategic logic as we study Competition Demystified by Bruce Greenwald (in the Value Vault, see ABOUT, http://csinvesting.org/about/) in early 2012. Now is the time to voice a complaint, comment or suggestion if you have reservations about our impending trek. Understanding financial statement analysis, studying market history and other great investors are all part of your investment journey.  The gap, I see, in the education of many is in understanding competitive advantages. There is no way around studying case studies and thinking hard about the subject.

The most profound effect studying competitive analysis, franchises, and barriers to entry as an investor has been to understand how rare structural competitive advantages really are. And the great businesses that can grow and redeploy capital at high rates are precious and difficult to find. Companies are often non-franchise, asset-type investments that an investor should buy only when there is a huge discount (read: massive disappointment, despair and disgust with the business) between reproduction and earnings power value (See Greenwald Lecture Notes here: http://wp.me/p1PgpH-23). If you are similarly influenced, you will be much more discerning in your investments. You may even invest as Buffett suggests, with a 20-hole punch-card.  Much of your investment life will be spent reading while waiting for the perfect pitch.

BUFFETT

Back to why our study of Competition Demystified is critical. Buffett is a keen student of business franchises as he was tutored by Charlie Munger when they bought See’s Candy.

(Source 1983 Berkshire Annual Report and Letter to Shareholders). Despite the volume problem, See’s strengths are many and important.  In our primary marketing area, the West, our candy is preferred by an enormous margin to that of any competitor (Regional/Local Economies of Scale).

You also alluded to getting a return on the amount of capital invested in the business.
 How do you determine what is the proper price to pay for the business?

Buffett: It is a tough thing to decide but I don’t want to buy into any business I am not terribly sure of. So if I am terribly sure of it, it probably won’t offer incredible returns. Why should something that is essentially a cinch to do well, offer you 40% a year? We don’t have huge returns in mind, but we do have in mind not losing anything. We bought See’s Candy in 1972, See’s Candy was then selling 16 m. pounds of candy at a $1.95 a pound and it was making 2 bits a pound or $4 million pre-tax. We paid $25 million for it—6.25 x pretax or about 10x after tax. It took no capital to speak of. When we looked at that business—basically, my partner, Charlie, and I—we needed to decide if there was some untapped pricing power there. Where that $1.95 box of candy could sell for $2 to $2.25. If it could sell for $2.25 or another $0.30 per pound that was $4.8 on 16 million pounds. Which on a $25 million purchase price was fine. We never hired a consultant in our lives; our idea of consulting was to go out and buy a box of candy and eat it.

See’s Candy

What we did know was that they had share of mind in California. There was something special. Every person in Ca. has something in mind about See’s Candy and overwhelmingly it was favorable. They had taken a box on Valentine’s Day to some girl and she had kissed him. If she slapped him, we would have no business. As long as she kisses him, that is what we want in their minds. See’s Candy means getting kissed. If we can get that in the minds of people, we can raise prices. I bought it in 1972, and every year I have raised prices on Dec. 26th, the day after Christmas, because we sell a lot on Christmas. In fact, we will make $60 million this year. We will make $2 per pound on 30 million pounds. Same business, same formulas, same everything–$60 million bucks and it still doesn’t take any capital.

And we make more money 10 years from now. But of that $60 million, we make $55 million in the three weeks before Christmas. And our company song is: “What a friend we have in Jesus.” (Laughter). It is a good business. Think about it a little. Most people do not buy boxed chocolate to consume themselves, they buy them as gifts—somebody’s birthday or more likely it is a holiday. Valentine’s Day is the single biggest day of the year. Christmas is the biggest season by far. Women buy for Christmas and they plan ahead and buy over a two or three-week period. Men buy on Valentine’s Day. They are driving home; we run ads on the Radio. Guilt, guilt, guilt—guys are veering off the highway right and left. They won’t dare go home without a box of Chocolates by the time we get through with them on our radio ads.  So that Valentine’s Day is the biggest day.

Can you imagine going home on Valentine’s Day—our See’s Candy is now $11 a pound thanks to my brilliance. And let’s say there is candy available at $6 a pound. Do you really want to walk in on Valentine’s Day and hand—she has all these positive images of See’s Candy over the years—and say, “Honey, this year I took the low bid.” And hand her a box of candy. It just isn’t going to work. So in a sense, there is untapped pricing power—it is not price dependent. (Source: Buffett’s 1998 Speech to Univ. of FL Business School Students)

Charlie Munger on the Mental Model of Microeconomics

Strategic logic or microeconomics is one of the mental models that Charlie Munger suggests you know cold.

http://www.tilsonfunds.com/MungerUCSBspeech.pdf

Too Much Emphasis on Macroeconomics

My fourth criticism is that there’s too much emphasis on macroeconomics and not enough on microeconomics. I think this is wrong. It’s like trying to master medicine without knowing anatomy and chemistry. Also, the discipline of microeconomics is a lot of fun. It helps you correctly understand macroeconomics. And it’s a perfect circus to do. In contrast, I don’t think macroeconomics people have all that much fun. For one thing they are often wrong because of extreme complexity in the system they wish to understand.

Case study: Nebraska Furniture Mart’s new store in Kansas City

Let me demonstrate the power of microeconomics by solving a microeconomic problem. One simple problem is this: Berkshire Hathaway just opened a furniture and appliance store in Kansas City [www.nfm.com/store_kansascity.asp]. At the time Berkshire opened it, the largest selling furniture and appliance store in the world was another Berkshire Hathaway store, selling $350 million worth of goods per year. The new store in a strange city opened up selling at the rate of more than $500 million a year. From the day it opened, the 3,200 spaces in the parking lot were full. The women had to wait outside the ladies restroom because the architects didn’t understand biology. (Laughter). It’s hugely successful.

Well, I’ve given you the problem. Now, tell me what explains the runaway success of this new furniture and appliance store, which is outselling everything else in the world? (Pause). Well, let me do it for you. Is this a low-priced store or a high-priced store? (Laughter). It’s not going to have a runaway success in a strange city as a high-priced store. That would take time. Number two, if it’s moving $500 million worth of furniture through it, it’s one hell of a big store, furniture being as bulky as it is. And what does a big store do? It provides a big selection. So what could this possibly be except a low-priced store with a big selection?

But, you may wonder, why wasn’t it done before, preventing its being done first now? Again, the answer just pops into your head: it costs a fortune to open a store this big. So, nobody’s done it before. So, you quickly know the answer. With a few basic concepts, these microeconomic problems that seem hard can be solved much as you put a hot knife through butter. I like such easy ways of thought that are very remunerative. And I suggest that you people should also learn to do microeconomics better.  END.

You should read the first three chapters of Competition Demystified to explain how Mrs. Bee developed Nebraska Furniture Market’s advantage.  We will review those chapters in the next several posts while delving deeply into minimum efficient scale and economies of scale.

Whether you learn about microeconomics here or elsewhere, it is critical to apply these mental models in your business analysis.

HAPPY NEW YEAR!

Misery, First Solar (FSLR), Invert

Johnson spoke well when he said that life is hard enough to swallow without squeezing in the bitter rind of resentment.  Charlie Munger

“Invert, always invert,” Jacobi said. He knew that it is in the nature of things that many hard problems are best solved when they are addressed backward. –Charlie Munger

How to Guarantee Misery in Your Life

Below are tips from the great and the not-so-great on how to guarantee misery and second-rate achievement in your life.

Johnny Carson says,

  1. Ingesting chemicals in an effort to alter mood or perception;
  2. Envy, and
  3. Resentment.

John Chew pleads: Meet my Ex.    http://www.youtube.com/watch?v=i5OlolbLXvw.    Not to be watched if squeamish.

Charlie Munger intones:

  1. Be unreliable. Do not faithfully do what you have engaged to do.
  2. Learn everything you possibly can from your own experience, minimizing what you learn vicariously from the good and bad experience of others, living and dead.
  3. Go down and stay down when you get your first, second, or third severe reverse in the battle of life.
  4. Avoid thinking creatively about problems. Never invert.

First Solar

Now to put our lessons to the test…

I read the news this morning…Oh boy. –The Beatles.

This morning I read a Bloomberg story discussing First Solar’s attractive valuation following its recent selloff.  Also analysts have rekindled takeover chatter. “First Solar is still profitable,” a Kaufman analyst explains. “So you are buying the best in the industry at a discount price. Certainly for both GE and Siemens (SI), it would diversify their energy platform.” FSLR trades at 60% of book value and 5 or 6 times trailing earnings.

If the Kaufman analyst said that to me, this is exactly how I would respond. http://www.youtube.com/watch?v=6eXFxttxeaA

Why?  What is the strategic thinking you would need to do before considering this as an investment?

How could you have avoided this house of pain before the price drop?

 

http://ycharts.com/:

Subsidy Orgy Ending, First Solar’s Hangover is Just Beginning By Jeff Bailey

Ever been to a sporting event where, during a break in the action, they wheel out that clear booth, stick some poor sucker from the crowd inside, and cash is blown into the enclosure for a brief period of shameless money-grabbing?

The global boom in government subsidies to the solar panel industry went something like that, and one can see the brief and frenzied joy of that period in First Solar’s (FSLR) up-and-down stock chart, with today’s price a steep 90% or so below the peak.

The good times were good. Malaysia was handing out huge tax holidays for manufacturers, so First Solar built plants there. Germany seemed intent on covering every roof with solar panels, paid for in part by government subsidy, so First Solar sales were huge there. And not to be left out, the U.S., during its giddy economic stimulus days, offered cash grants for solar installations. Party on.

But, as with past alternative-energy orgies, the good times must come to an end. Goodbye to First Solar’s market cap of $20 billion. Jimmy Carter’s Public Utility Regulatory Policies Act of 1978, known as PURPA, led to tens of billions of dollars of alternative energy projects, including some early and costly solar. But paying above-market electricity rates to subsidize the projects became so costly that PURPA was eventually curtailed.

Poor politicians can’t help themselves. They love stuff like solar and wind, which generate manufacturing and construction jobs and makes everyone involved seem so with it. More efficient energy projects – like ones that reduce consumption – are by comparison so boring, even if they make more sense.

Last week, in announcing reduced earnings projections for 2011 and 2012, First Solar’s CEO Mike Ahearn said, “we are recalibrating our business to focus on building and serving sustainable markets rather than pursuing subsidized markets.” Investors can count on thinner margins and all the hassles and expenses that go with building and operating huge energy projects. And solar remains a relatively expensive way to make power. Unless the brent crude oil price chart goes to $200 a barrel.

In the meantime, the stock is bound to look super cheap by some measures. A trailing PE of 5, of course, suggests some big adjustments ahead to the E.

But it won’t be until 2014, Ahearn said in a statement, that First Solar’s will “earn substantially all” of its revenues from non-subsidized markets. So the results until then are nothing to make long-term bets on. The last of the party is still winding down. End.

Thoughts on First Solar and Competitive Advantage

OK, I am not saying First Solar is not a buy at any price, but what did the Wall Street “analysts” not analyze.

Studying competitive advantage will help us as much in avoiding a house of pain as in finding profitable investments.

Greatest Company Analysis, Studying Franchises and More………….

“The average person can’t really trust anybody. They can’t trust a broker, because the broker is interested in churning commissions. They can’t trust a mutual fund, because the mutual fund is interested in gathering a lot of assets and keeping them. And now it’s even worse because even the most sophisticated people have no idea what’s going on.” –Seth Klarman

I’m passionate about wisdom. I’m passionate about accuracy and some kinds of curiosity. Perhaps I have some streak of generosity in my nature and a desire to serve values that transcend my brief life. But maybe I’m just here to show off. Who knows? –Charlie Munger

Best Company Analysis

Several experienced investors (including charlie479) have called the lecture in the link below one of the best company analysis ever done. A Charlie Munger speech about worldly wisdom in solving the problem of building a trillion-dollar business almost from scratch.  http://www.scribd.com/doc/76174254/Munger-s-Analysis-to-Build-a-Trillion-Dollar-Business-From-Scratch

Analysis of a Franchise: Linear Technology

An analysis of Linear Technology’s franchise characteristics: http://www.valueinstitute.org/viewarticle.asp?idIssue=1&idStory=109

Do you agree with the above analysis? The five companies below are considered by some to be franchises. Build a database of franchise companies to eventually purchase at the right price for you. Write down what you think are the sources of competitive advantage. Can you arrive at a ball-park value?  If not now, then set aside for future reference. Note the level of ROIC, operating margins, use of excess capital, growth and investment needed for growth and the history of returns.

Linear:                      LLTC 25 Year    LLTC_VL

Balchem:                  BCPC_35 Year   BCPC_VL

Applied Materials: Charts 35 year AMAT  AMAT_VL

Analog Devices:      ADI_35 Year  ADI_VL

Intel:                         INTC_35 Yr   INTC_VL

Now is the time to dig into the Value Vault and read, Competition Demystified by Bruce Greenwald. A study guide is offered here (Thanks Sid): http://competitiondemystified.com/index.htm

Be the Best

To be the best, you will need to have character, be independent and tough like Joker: http://www.youtube.com/watch?v=gYxEIyNA_mk&feature=related

You will need to develop your skill in understanding and recognizing franchises. Eventually you will show skill like this: http://www.youtube.com/watch?v=HwtMPdMFXQA&feature=related or take it to the hoop like Jordan: http://www.youtube.com/watch?v=U17x7gJ33bY&feature=related

I have never held a ball in my hands, but even I know Jordan is practicing magic not basketball–but, then again, he almost didn’t make his high school team.

 A Good Data Source

Accounting, business studies, and data here: http://mgt.gatech.edu/fac_research/centers_initiatives/finlab/index.html

Freedom vs. Tyranny

A satellite view of tyranny vs. freedom: North vs. South Korea    http://mjperry.blogspot.com/2011/12/legacy-of-n-korean-dictator-kim-jong-il.html

Answer to Economic Question Posed in previous post

The European Central Bank (“ECB”) is offering euro zone banks loans of up to 3 years on Dec. 21 at a rate of 1%. A Wall Street/City of London Whiz can buy Spanish paper at plus 2% on money borrowed from the ECB at 1%. Brilliant! This is going to deluge the Euro zone with money and become extremely bullish for the Euro zone markets and price inflationary.  How else do central bankers know how to deal with a financial crisis. Print.

A viewpoint of America’s involvment in the Euro crisis: http://www.thedailybell.com/3379/Ron-Paul-Beware-the-Coming-Bailouts-of-Europe

Have a good evening.

Corporate Finance: Dividend Policy, Strategy, and Analysis

Earlier we analyzed stock repurchases. http://csinvesting.org/2011/12/08/an-insiders-view-of-capital-allocation-corporate-financie-valuation-case-studies/

Now we beat the subject of dividends to death from all angles especially from an insider’s perspective. Munger, Buffett, Peter Lunch and others discuss dividends http://www.scribd.com/doc/75491721/Dividend-Policy-Strategy-and-Analysis-Value-Vault

Please refer to the charts of the companies mentioned in the document:

WDFC_30 year chart

MO_50 year chart

MRK 50-Yr chart

Treasure Trove Discovered! and Build a Multi-Billion Dollar Business Case Study

The link below will take you to many other links to investing resources like case studies, business histories, foreign stock information, value investing ideas.  There is more here to keep you learning for the next few months. I can’t vouch for the quality of all the information, but you can root around for yourself. Tell me your favorite links: http://www.scorpioncapital.com/manual/links.php. A potential treasure trove!

This brings me to the philosophy of this blog. In the Value Vault you will find the book, Applied Investing and a Powerpoint of Porter’s Five Forces. I do not feel those works are particularly useful. I wrote a critical review on Amazon of Applied Investing here:

http://www.amazon.com/review/R25P1MHUTA7C3J/ref=cm_cr_pr_cmt?ie=UTF8&ASIN=0071628185&nodeID=&tag=&linkCode=#wasThisHelpful

I find many of the readers’comments on Amazon’s book review section ludicrous. Do the the author’s students write the reviews?

But I do not want to censor material because of what I think; instead make up your own mind.  Greenwald in his book Competition Demystified says that Porter’s analysis is four forces too many. I would rather have you read Porter’s book, Competitive Strategy (1980) or view the Powerpoint of the Five Forces than exclude them. If you find material totally misleading or harmful to learning how to become a better investor, let me know.

TEST QUESTION

To prepare yourself to read the world’s best business analysis ever done (to be posted Friday December 16th) please read Munger’s, The Art of Stock Picking.

http://www.scribd.com/doc/75389403/Charlie-Munger-Art-of-Stock-Picking

Next, sit quietly and write to your investors how you will build a multi-billion dollar business from scratch.  Take no more than an hour. You can go into the Value Vault* and read Bruce Greenwald’s Competition Demystified and the Powerpoint of Porter’s Five Forces to assist your understanding of competitive advantages since if you are to succeed you will need several or many working for you.

Good luck.

To gain access to the Value Vault (a collection of videos and materials on business and investment analysis) just email me at aldridge56@aol.com with VALUE VAULT in the subject heading. I will email you a key provided you use the materials for your own use.

Question from a Reader–The Best Way to Improve Your Skill as An Investor

Question from a reader

There seem to be two courses of action in trying to apply the lessons learned via your website to improve your skill as an investor. The first is to do an in-depth study of a single company, its industry and its competitors. The second option is to read as many 10-Ks as possible and do quick and dirty valuation similar to those found in, say, Greenblatt Class #5.

Which option do you see as more valuable? Am I missing a third way?

Great question and I will elaborate more as this blog develops.

Mario Gabelli advises students to pick one industry and study that thoroughly then after 3 to 4 months move on to another industry. Buffett started by pawing his way through Moody’s manuals and Value-Line to find cheap asset stocks like cigar butts. Munger influenced Buffett with Sees Candy to look at high quality businesses.

After you have read the obligatory required materials like Buffett’s shareholder letters, his Buffett Partnership letters, Margin of Safety, The Intelligent Investor, the Greenblatt books and lecture notes, you need to build from there. My interest and suggestion would be to find 6 to 8 compounding machines which can be bought at a discount.  If you can find a few high return on capital companies that are able to redeploy that capital for several years at high rates, you will have outstanding returns. These companies are rare that is why you must be patient to find them and to hold them.  But you must know what to look for.  You should become an expert in how companies develop and maintain competitive advantages. This will help you in searching for great investments and give you confidence to hold them for a while.

For example, if you understand regional (geographic) economies of scale you could focus on service companies like waste hauling and disposal or rock aggregates or health care providers and notice if they dominate their particular regions. Do you see high returns on capital? Study these companies and wait for them to go on sale.  Rather than wait for blow-ups and disasters to study companies, find the best emerging companies you can find, study them regardless of price then wait for your opportunity.

Take a look at the last case study on charlie479.  He epitomizes what I am talking about.  Read broadly and deeply about businesses—10-Ks but books and autobiographies too.  As you learn more about competitive advantages you will see connections in other businesses. You will see companies losing their advantages but look for companies that are successfully entering against incumbents. Look at niche companies that can dominate smaller markets.   Read, read and read.

Next week I will post the best company analysis in the world done by Charlie Munger.  If you can learn how he views business problems then you will grasp what is most important in business analysis.

You can buy cheap assets in special situations where management restructures the debt or assets and you get a nice bump up in price, then you must redeploy your capital like a merchant into another asset play.   This can be profitable and relatively low risk but the big money is made sitting on fantastic businesses that are compounding at high rates.  I would focus there. Few investors study competitive advantages–I mean become an expert at spotting and understanding great companies.

Fire away with more questions.

Lectures on Behavioral Finance, Buffett and Munger

Since this blog is a learning resource, I will happily point you to other websites/blogs where you can learn.

Sanjay Bakshi is an investor and professor in India who applied the lessons of Graham, Buffett, and Munger to his teachings and investing. I recommend: http://www.sanjaybakshi.net/Sanjay_Bakshi/BFBV.html

You can download 9 lectures and peruse his site. Also, a student organized a few of his past posts–perhaps an easier way to find your interests.

http://kiraninvestsandlearns.wordpress.com/prof-sanjay-bakshis-posts/

Sanjay’s site will help deepen and broaden your thinking. For example:

Nothing is more dangerous than an idea when it is the only one you have–Emile Auguste Chartier

Why should I buy this stock?

Because it is cheap!

Under what circumstances would this be a mistake? Name three reasons why you could be wrong?

  1. Fraud
  2. Value Trap (declining industry)
  3. Bubble Market

I followed a golden rule that namely whenever a new observation or thought came across me, which was opposed to my general results to make a memorandum of it without fail and at once for I had found by experience that such facts or thoughts were more apt to escape from the memory than favorable ones. –Charles Darwin

I will post other recommended blogs, but when they fit a context.

Lecture 10: Analyzing Moody’s and Using Buffett’s Purchase of Coke as a Comparable

The art of investment has one characteristic that is not generally appreciated. A credible, if unspectacular, result can be achieved by the lay investor with a minimum of effort and capability; but to improve this easily attainable standard requires much application and more than a trace of wisdom.  — Ben Graham, The Intelligent Investor.

It’s not supposed to be easy. Anyone who finds it easy is stupid. – Charlie Munger.

Please use the link below to read this lecture on Moody’s.  You will learn how a great investor used Buffett’s purchase of Coke in 1988 to make a case for buying Moody’s in 2000 at a high multiple (21) of earnings.

http://www.scribd.com/doc/69137839/Lecture-10-Moody-s-Corporation-Example

Note how this Great Investor is focused on quality companies. You will not learn in business school his creative comparison of two companies at different times and in different industries.