Why Book Value Does Not Matter For Buffett's IBM Investment
by Michael Fu
Value investors will sometimes look at book value when considering stocks that may be good investments. In his annual letter, Warren Buffett of Berkshire Hathaway (BRK.A) always begins with a discussion of Berkshire's book value (for reference, Berkshire currently trades around 2.2x price-to-book value). In one of my previous articles, I also looked at book value to identify five potential stocks that appear cheap because they trade below 1.0x price-to-book. However, book value sometimes is not a good indicator when determining the appropriate value of a stock. Specifically, when companies like IBM engage in consistent stock repurchases over the years, investors should ignore book value because it undervalues the true value of the company. read more »
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