A fascinating research report by Credit Suisse U.S. equity strategist Jonathan Golub implies that almost everything we know about value investing is, if not wrong, overly simplistic and misdirected. The report helps explain the significant underperformance of conventional value investing as a strategy in recent years, and also provides insight into why Berkshire Hathaway, a famously valuation-conscious asset manager, added a position in seemingly expensive Amazon.com.
Not only are price-to-earnings ratios outdated, but replacing them means that U.S. equity markets are substantially under-valued.“Over the past decade, companies have moved increasingly toward capital-light business models.
Warren Buffett recently announced that one of Berkshire Hathaway’s money managers was acquiring a stake in Amazon.com. This shocked many investors because Amazon’s current trailing price-to-earnings ratio of 85 times seemed far higher than Mr. Buffett’s growth-at-a-reasonable-price investment strategy would allow.
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