- The madness of the market
The market is always overreacting to the information that it is presented with.
2. How much is a business worth?
We must determine after we purchase the business, would it be able to generate more or less in the coming year.
We must decide how confident we are in that prediction.
We must estimate how much the business will earn 5 to 10 years from now.
3. PE (price to earnings ratio) and ROA (Return on assets)
The stock something sell at a discount from their underlying value.
Buying a business with low PE than a higher one.
ROA, the higher the better.
4. The magic formula