What Warren Buffett knows about the basic maths behind stock market diamonds
The stock market is basically full of dirt. The majority of companies listed are like the earth beneath our feet - grinding along just about sustaining the goods and services the economy needs in order not to flatline. But in that dirt there are diamonds, undiscovered or thrown away, hard to spot with the naked eye but which once polished can gleam so brightly that investors will pay a huge premium for them. Of course as so few investors seem to know the difference between pebbles and dirty diamonds as they come out of the ground the cons at the top of the mine can talk up any old bit of rock as the next big thing. Its amazing how time and again we are suckers for it… wouldn't it pay to learn to spot the difference?
Warren Buffett clearly did. He knew how to identify great companies with 'superior economics' before anyone else. His thinking hinged on the qualitative understanding of a company's durable competitive advantage' that I wrote about last week but also on the 'monster mathematics' of a great company's financials.
What you need to track down wealth building stocks
The finance industry has...