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In his 2014 letter to shareholders, Warren Buffett used a real estate analogy to explain how to value a business. He suggested that buying a business should be as straightforward as buying a condo. You need to know the cost of the condo, the characteristics of the neighborhood, and the annual maintenance and fees. Similarly, you need to know the cost of the business, its market position, and its operating costs. Once you have these numbers, you can determine if the business is worth buying. This approach simplifies the complex process of business valuation.
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Do you long for the day when you can work less and travel more? Do you fear that you’ll never have enough money to be able to retire? By following War...
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In his 2014 letter to his shareholders, Buffett laid out the simplest way to put a price on a business: think about it like a real estate purchase. You know what the condo costs, what the neighborhood is like, and what the maintenance and yearly fees will be; and you know how much mortgage you can afford. With those numbers, you can figure out if this particular condo is the one you should buy. Pricing a company is no more complicated, once you know where to find the numbers and what to do with them.
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