Originally Posted by
winner69
Wasn't Buffett into saying that reinvesting earnings and returning the same return on equity (ROE) creates added Market value
Simple case -
Equity 1000 and 20% ROE gives 200 earnings = say PE is 10 then share price is 2000
Assume earnings retained - equity now 1200 - 20% ROE would give earnings of 240 - PE stays at 10 gives shareprice of 2400
The 200 retained has added 400 market value - 1 buck retained giving 2 bucks return ...as you say baller "Each dollar of retained earnings is translated into at least one dollar of market value."
Mr Buffett had a very simplistic approach eh. Give the 200 back to shareholders and still make 20% ROE the shareprice stays at 2000.
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