Buffett’s Multiple

by Evan Vanderveer

Evan Vanderveer column: Emil Lee of the Motley Fool wrote a wonderful, yet underappreciated article on which I hope to build entitled, “Is 12.5 Buffett’s Magic Number?” In short, the answer appears to be unequivocally, yes.

Warren Buffett is arguably one of the most selfless educators in business history. At the Berkshire Hathaway Annual Meeting each May, he allows shareholders to ask questions without any restrictions, except in regards to his current holdings. When asked about valuing businesses at these meetings and others with students, Buffett has responded by repeating John Burr Williams definition of intrinsic value penned in 1938; intrinsic value is all future cash flows from the company discounted at an appropriate rate. In other words, as Buffett previously said, “If you can tell me what all of the cash in and cash out of a business will be, between now and judgment day, I can tell you, assuming I know the proper interest rate, what it’s worth.”

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