No. of Recommendations: 0
"Buffett has defined this as being the discounted value of all future cash flows, with the discount rate usually understood to mean something like the 10-year Treasury rate (currently about 4.2%)."
Graham used the AAA corporate bond yield, currently about 5.5%. Most people use their personal required return, 8%, 10%, whatever. The only discount rate that brings a future stream of cash flows back to present value is a discount rate equal to the total return.
"A multiple of 24 would be appropriate if they can increase their earnings 2% faster than the treasury rate."
Could you please explain this? Are you say that if Berkshire can increase earnings at 4.2% + 2% = 6.2%, then it deserves a PE of 24? Thanks in advance for explaining.
