Selecting Good Companies (ROE, PB and PER)

[Musicwhiz]

Hi thinknotleft,

So let's say you can find a business which does return >20% ROE for 10 years consistently, does this mean you would pay a premium over book value for it? And how high is your threshold before you will think it's not worth paying for?

Although I would agree investing is NOT looking at merely the rear view mirror, historical financials do give a good peek at the Company's business model and hence track record which one can use to reliably project into the future. Barring exceptional circumstances or Acts of God or political upheavals, I should say a Company which generates very good FCF and high ROE should continue to do so.

For investing, my personal belief is one should not be a pessimist; neither should one be an optimist. Instead, one should strive hard to be a realist, and always a business analyst. A realist should look at the world through an objective and rational lens, and be as neutral as possible in his analysis (devoid of emotional factors).

Just my 2-cents.