Thread by @lhamtil

Thinking about this Buffett excerpt from 1992: "[A] high ratio of price to book value, a high price-earnings ratio, and a low dividend yield - are in no way
inconsistent with a "value" purchase."
berkshirehathaway.com/letters/1992.h…

A good example of this is a company like Church & Dwight $CHD. Over the last ~40 years, it has rarely traded at a discount to the market. Conversely, Altria $MO has rarely traded at a premium to the market.

Both stocks have crushed the market over the last four decades

However, valuation does matter in terms of future returns, but in each case, the "value" component is obviously relative to the unique nature of that company's business. Historically, for $CHD, it seems to cluster around ~20x TTM earnings, generally a premium valuation

In the case of $MO, it has generally been around the mid to low teens, reflecting some of the unique risks associated with investing in the controversial industry, or the "sin premium (discount)"

TTM P/E seems to be more useful in the case of non-cyclical stocks; as Peter Lynch has noted, for cyclicals, a low trailing P/E is usually indicative of peak earnings

As my friend @millerak42 likes to say, absolute valuation is a blunt instrument. You need finer-edged instruments to determine if something is truly a value.

In full disclosure, my clients and I own $MO; some portfolios own $CHD