Why has a company’s ability to grow taken on more importance?
BN: It came out of an analysis of our own and others’ mistakes. One of the big mistakes value investors can make is to be too enamored with absolute cheapness. If you focus on statistical cheapness, you’re often driven to businesses serving shrinking markets or that have developed structural disadvantages that make it more likely they’re going to lose market share. We felt a lot of companies we were buying did not face that negative future, especially as we extended the time frame we were looking at for a company to reach normalized earnings. We make specific earnings forecasts one and two years out and then think about what the business might look like in five years if you gave it enough time for the gap between price and intrinsic value to close. That puts our analytic focus on things like industry growth, competitive positions, market-share changes, cash generation
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