If, in 1999 and 2000, when Colgate-Palmolive, Hershey, and Brown-Forman were each trading for 30x profits, you decided to buy shares anyway, the results would look like this:
The Colgate shares would have compounded at 8.15% annually, turning a $10,000 investment into $30,200.
Shares of Hershey, despite even higher valuation compared to Colgate, would have compounded at 11.50% annually over that time frame, turning a $10,000 investment into $46,500.
Shares of Brown-Forman, the excellent alcohol company that almost no one outside of Louisville or the investor community has ever heard of, has compounded at 15.60% annually since that time, turning $10,000 into over $77,500.
That adds a nuance to the investor’s dilemma: Value investors tend to desire a margin of safety before making an investment, but accept paying reasonable prices in the realm of 20x profits for a company that clearly possesses extraordinary attributes (Nestle, Procter & Gamble, and Pepsi … Read the rest of this article!