The 3 Sources of Returns for Warren Buffett's Original Partnership

I was recently reading through Buffett's Partnership Letters (which can be found here) and stumbled upon something that he mentioned numerous times that I've never seen mentioned anywhere else before. Buffett classified his investments into three categories that he believed would have various correlations with the market. He believed that by splitting his capital up into general issues, work-outs, and control situations, he could better protect his downside in order to out-perform the Dow Jones long term.

The Issue with EBITDA: A Case Study into Valeant Pharmaceuticals

EBITDA was created in the 1980s during the LBO boom. At the time, EBITDA was a somewhat relevant metric to acquirers who used significant leverage in purchasing a business. This is because the company's debt would be refinanced at acquisition, so the current interest payments could be ignored. Taxes were irrelevant as almost all earnings were used for interest payments. Finally, as corporate raiders had no intention of reinvesting capital back into the business, maintenance CAPEX, and by proxy, depreciation and amortization, became irrelevant as well.

After the 1980s, Wall Street stuck with its obsession with EBITDA because it produces a significantly higher number than plain earnings. Who wants to buy a company at a P/E of 44? Very few. What if the same company has an EV/EBITDA of 8? Strong buy!

Hello, World!

The African spurred tortoise (Centrochelys sulcata), also called the sulcata tortoise, is a species of tortoise, which inhabits the southern edge of the Sahara desert, in Africa. It is the third-largest species of tortoise in the world, the largest species of mainland tortoise, and the only extant species in the genus Centrochelys.