The Cigar Butt Debate
Cheap & mediocre vs. wonderful & fair
If the price is low enough relative to liquidation value, you get one last puff of profit. Berkshire Hathaway itself was this kind of bet.
It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
A great business is a compounding machine. You don't have to keep finding new cheap stocks. The returns compound on their own over decades.
Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices.
Charlie Was Right
Buffett adopted Charlie's framework wholesale. The See's Candy acquisition in 1972 was the first major proof of concept — paying 3x book for an intangible moat.
From net-net/liquidation-value investing → quality compounders at fair prices
See's Candy Shops (1972) — paid $25M for a business earning $4M, an unprecedented premium for Buffett