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Excess Returns: A comparative study of the methods of the world's greatest investors by Frederik Vanhaverbeke

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CHAPTER C

FUNDAMENTAL BUSINESS ANALYSIS

“I would rather be certain of a good result than hopeful of a great one. I don’t look to jump over 7-foot bars. I look around for 1-foot bars that I can step over.”

WARREN BUFFETT, 1996 LETTER TO THE SHAREHOLDERS OF BERKSHIRE HATHAWAY

FUNDAMENTAL BUSINESS ANALYSIS is one of the cornerstone(s) of the investment process. After all, although there may be a disconnection between a company’s success and its stock price over the short to medium term, price action over the long term is almost completely determined by a company’s business success (or the lack thereof). Business analysis is indispensable to making reliable fair value estimates of companies.

But not all analyses are created equal. Business analysis ...

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