5

CHAPTER

Develop a Search Strategy

THE SECOND ELEMENT

A public opinion is no substitute for thought.

— Warren Buffett

There are thousands of publicly traded companies in the United

States and thousands more throughout the world. Searching for

stocks is both interesting and daunting. The quest for the “ next

great stock ” has become the holy grail of investing. The truth is

there are no great stocks, only great investments. What differenti-

ates between the two? The price you pay. And how do you increase

the likelihood of paying a sensible price for a share in a company?

By making your investment decisions based on business fundamen-

tals and nothing else.

A great business does not necessarily imply a great stock invest-

ment. Google is a fantastic business that generates tremendous

profi ts. However, if you were buying Google at $ 700 a share and

paying 42 times earnings, you weren ’ t making a great investment.

Remember the other way to look at the price to earnings (P/E)

ratio is by inverting it to get the earnings yield. So for Google, a

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