Mr Bearbull 

The ‘butts’ and the ifs

Mr Bearbull

Mr Bearbull

Warren Buffett called it ‘cigar-butt investing’ – the notion that you buy shares in a low-quality company, but below net asset value. In the long run there is no gain because the company’s profits don’t cover its cost of capital. Short term, however – and for whatever reason – the share price might bob back to asset value and you make a turn. Do that often enough and your returns become decent. By analogy, it’s like taking a drag from a discarded cigar butt – not a wonderful thing, but the nicotine hit is free.

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