That's this: it's okay to buy high-price-earnings multiple companies, provided they want to change the game at some point in the future. And in turn, the strong firm can provide shareholders with extraordinary returns as dominance of a particular industry takes greater hold.
<p class = "canvas-textile-textile Mb (1.0em) Mb (0) – Sm Mt (0.8em) – sm" type = "text" content = "" The idea that the value is on one or another way related to book value or low cost to earnings ratio – as Charlie has said, everything investing is worth investing, Buffett tells a packed house of shareholders at Berkshire Hathaway's last year's meeting when asked about the logic behind the firm's acquisition of Amazon . "data-reactid =" 17 ">" The idea that the value is somehow linked to book value or low price to earnings conditions – as Charlie has said, invests everything is worth investing, "Buffett told a packed house of shareholders of Berkshire Hathaway's last annual meeting when asked about the logic behind the company's acquisition of Amazon.
Buffett continued, "I think you are putting some money out now to get some money later and you are taking a calculation of the probabilities of to get the money and when you get it. "
Oracle of Omaha revealed this week that one of his investment managers – either Ted Weshcler or Todd Combs – has bought some of the Amazon shares over the past few months. The purchase probably surprised many Buffett watchers, even when considering Buffetts praise over the years Amazon founder Jeff Bezos.
A Master of Valuation Investment
Buffett has long been a champion of an investment type called value creation. The approach was groundbreaking by Buffet's mentor, teacher, and author of "Intelligent Investor & # 39; Benjamin Graham
<p class = "canvas-textile textile Mb (1.0em) Mb (0) – sm Mt (0.8em) –sm" type = "text" content = "Graham's value-based disciplines on investment included : (1) Finding Equity Shares, (2) Searching for Stocks with Low Price-to-Book and Price Earnings; and (3) companies favor steady profits. Buffett has used the mentor's guide posts to make great efforts in Coca-Cola ( KO ) and Delta Air Lines ( DAL ) over the years and not too much for major acquisitions such as Burlington Northern Railways. "data-response time =" 22 "> Graham's value-based investment disciplines included: (1) finding equity-traded shares; (2) looking for low-price-to-book and price-earnings stocks; and (3) favoring Buffett has used the mentor's guide posts to make great efforts in Coca-Cola (KO) and Delta Air Lines (DAL) over the years and not overpay for major acquisitions such as Burlington Northern Railways.
Buffett has also spun it intense focus on value that invests in one of the biggest investment rates at all times – one that has undoubtedly earned many long-term investors well. "We are simply trying to be scared when others are greedy and greedy only when others are scared , "Buffett said.
Buffett's Amazon Wager
<p class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "But Buffet's purchase of Amazon flies in the face of its long-term investment views. The Amazon share – which always trades on the right valuation multiples with its technology industry status – now achieves a high-value profit multiple of 51 times, & nbsp; per Yahoo Financial data . It's about two and a half times the forward-to-earnings majority of the S & P 500. The stock trades with an exorbitant 20 times price for book conditions on a demand 12-month basis. "data-reactid =" 38 "> But Buffet's purchase of Amazon flies in the face of its long-term investment views. The Amazon share – which always trades on rich valuation multiples given its status in the technology industry – now achieves a high forward-to-earnings rate of 51 times , per Yahoo Finance data, it's about two and a half times the forward-to-earnings more of the S&P 500. The stock trades with an exorbitant 20-fold box-to-box price on a subsequent 12-month basis.
And Above all, Amazon is known to not have stable profits as it invests aggressively to support retail, Alexa and cloud growth businesses.
Buffett Amazon venture appears to be rooted in stock market logic at higher valuation multiples of 25, 50, 100 years from now that Amazon is pushing forward with its dominance over many industries, the legendary investor probably has a first-hand look at how disruptive Amazon can be through its affiliation ruker-oriented businesses.
"The considerations are identical when you buy Amazon compared to any bank inventory that sees cheap consistent book value or income," Buffett said at the shareholders meeting.
Added Buffet's right man Charlie Munger, "Of course, as something this internet development is going on and you don't catch it, other people will blow you off. I don't mind not having caught Amazon early, the guy [Jeff Bezos] is a kind of miracle work. It's a little weird. "
Considering this otherwise tweaked investment philosophy inside Berkshire, one has to wonder how long Ted or Todd is waiting to pull the trigger on another game-changing technology company with Amazon features – the soon traded Uber.
<p class = "canvas-atom teacher-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " Brian Sozzi is an editor at-big and co-host for & # 39; The First Trade & # 39; in Yahoo Finance. Follow Brian Sozzi on Twitter @BrianSozzi @BrianSozzi > Brian Sozzi is an editor-at-big and co-hosted for & # 39; The First Trade & # 39; in Yahoo Finance. Follow Brian Sozzi on Twitter @BrianSozzi