Book Value, the total of a company’s tangible assets minus its liabilities, is not a factor for Warren Buffett in buying stocks. In fact, the need for a business to retain cash is the exact opposite of what he is looking for because “the really wonderful businesses require no book value.”
“Book value is not a bad starting point in the case of Berkshire. It’s far from the finishing point. It’s no starting point at all of any kind in whether it’s The Washington Post or Coca-Cola or Gillette,” Buffett said at the 2000 Berkshire Hathaway annual meeting. “It’s a factor we ignore. We do look at what a company is able to earn on invested assets and what it can earn on incremental invested assets. But the book value, we do not give a thought to.”
Hear Buffett’s full explanation
© 2023 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.