Goldman Sachs is a leading global investment banking firm. In 2007, Goldman had a book value of $100 per share. It earned a very high return on that book, with EPS nearing $25. Investors priced the stock as if that earnings level was sustainable, and the stock reached a high of $251. We have always admired Goldman’s profitability, but because of the competitiveness of the financial services sector, we were reluctant to pay a large premium to book value because that implied that its high returns were sustainable. Goldman’s book value per share continued to grow during the financial crisis, and ended the year at $139. Goldman’s stock, however, declined to just $90. At that price, we no longer had to believe that a 25% return on equity was sustainable; we simply had to believe that its balance sheet did not overstate its assets. Not only do we believe that, but we also believe that Goldman’s franchise makes the business worth more than its book value. The stock now sells at only 11x consensus 2012 earnings forecasts, and management is using capital in ways that enhance per-share value, including repurchasing 5% of its shares last year.