(Excerpt from today's Focused Compounding article)
"...three stocks I like right now (are):
1. Omnicom (now $72 a share)
2. Howden Joinery (now 424 pence)
3. And Cheesecake Factory (now $40 a share)
All are reasonably priced...Omnicom has a P/E of 15. Howden has a P/E of 15. And Cheesecake has a P/E of 14.
All of those sound wrong to me.
These are above average businesses with far above average predictability. They should have above average P/E ratios...
So, why aren’t I buying these stocks right now? Why keep 30% to 35% of my portfolio in cash when these 3 opportunities are available?
...I tend to buy stocks when a business I know I really like trades at about a 35% discount to my appraisal of its intrinsic value...these decisions are arbitrary in terms of the levels you set. If I plan to hold Omnicom stock for let’s say 5 years a difference of 10% in the initial purchase price level isn’t going to make more than a 2% difference in my annual rate of return...How much does that 2% a year really matter to you?
Most people I talk to would be more bothered by missing out on the opportunity to buy a business they like than they would be bothered by paying 10% more for the stock at the start. Most people I talk to about Omnicom say...if I like the stock that much...I should just buy it now.
But, that’s just not my approach.
I’m selective both on the quality of the business…and I’m selective on the price. I don’t like paying more than 65 cents to the intrinsic value dollar even when I like the business a lot."