Value Investing Glossary
Twelve core terms, explained in plain language. Each entry covers what the term means, why it matters, a simple example, and the misconception that most often trips people up.
The $25 million lesson that changed Buffett
In 1972 the sellers of See's Candies asked $30 million; Buffett, trained on Graham's cigar butts, refused to go above $25 million — roughly three times book value, a price the old Buffett would never pay. The deal nearly died over $5 million. Charlie Munger pushed back: a beloved brand with loyal customers and genuine pricing power deserved a premium.
They paid the $25 million. See's went on to ship more than $1.65 billion of cumulative pre-tax earnings back to Omaha while needing almost no additional capital — raising prices every year without losing a single loyal customer. Buffett later called it 'the prototype of a dream business' and credits this one purchase with rewiring how he invests.
Quality compounds quietly for decades. Temperament and a clear circle of competence beat chasing the cheapest price.
The best investor's worst investment
Berkshire Hathaway was a fading New England textile mill that Buffett bought into in the early 1960s because it was statistically cheap — and took control of in 1965 partly out of spite, after its CEO shaved an eighth of a dollar off a promised tender offer. For the next twenty years Buffett fed capital into newer looms while foreign competition ground prices ever lower.
No amount of good management could fix a commodity product with no moat. He finally closed the mills in 1985 and later called Berkshire "the dumbest stock I ever bought", estimating that the compounding forgone by not starting from an insurance company instead cost about $200 billion.
A low price cannot rescue a business with no moat. Knowing which problems are unfixable is what a circle of competence is for.
About this glossary
These entries are educational definitions, not investment advice. Understanding a term is the start of research, not a substitute for it.
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