When to buy, bow much to pay, when to sell

... cont'd from yesterday...

Continued discussion about Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage

Step Four: How Much to Pay for an ECDCA.

Price to Pay < (Pretax Earnings Per Share) / (Corporate Bond Interest Rate).

Provided that the Pretax Earnings Per Share has been consistently growing year-after-year and the prospects of continuing to do so is likely.

Step Five: When to Buy an ECDCA

After a market crash or after the price of the ECDCA has crashed due to a one-time solvable problem.

Step Six: When to Sell an ECDCA

One of three conditions:

1. When you need to raise cash to buy an even better ECDCA.
2. When it looks like the ECDCA is going to disqualify itself from being an ECDCA.
3. During a bull market when the P/E ratio of the ECDCA goes above 40.

...back next week...

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