No. of Recommendations: 1
Buffet's interest in growth was forward looking
"trading for 15 times forward earnings, and how many can expand earnings at 7% annually over the next five years with a reasonable degree of confidence."
Jim's screen included a criterion of EPS growth over last 5 years > 7%.
One can argue that earnings are unlikely to grow over the next 5 years if they haven't grown over the past 5 years, but that wasn't the Buffet prescription. If he wanted to look at growth over the past 5 years, he would have said so (maybe he did, it's not like we have a recorded conversation).
Just a thought:
If one posits that a past earnings growth criterion is useful in lieu of being able to project future earnings growth like Buffet can, then maybe one should also add a past return criterion? There's an implicit assumption in all this that solid earnings growth over a reasonably long period, e.g. 5 years, will more likely than not be associated with a solid return. So if one is going "ex-Buffet" and including a criterion that past earnings growth be very healthy, then maybe one should also add a criterion that the past return over the period be very healthy too, i.e. "Inflation + X%". Pick your "X".
