The look-through earnings framework is a powerful tool for evaluating what you own. In my 25 years as both a fund selector and asset allocator, I have seen this kind of rigorous business analysis make the difference within an equity portfolio.
But in my experience, the most consequential decision comes before stock selection: how much of the total portfolio should be in equities in the first place. Asset allocation research consistently shows that the split between equities, bonds, and other asset classes explains the vast majority of long-term portfolio returns, not which stocks you pick within the equity sleeve.
Getting the entry multiple right on a great business matters. In my view, getting the asset allocation right matters more.
The look-through earnings framework is a powerful tool for evaluating what you own. In my 25 years as both a fund selector and asset allocator, I have seen this kind of rigorous business analysis make the difference within an equity portfolio.
But in my experience, the most consequential decision comes before stock selection: how much of the total portfolio should be in equities in the first place. Asset allocation research consistently shows that the split between equities, bonds, and other asset classes explains the vast majority of long-term portfolio returns, not which stocks you pick within the equity sleeve.
Getting the entry multiple right on a great business matters. In my view, getting the asset allocation right matters more.
nice write up
The notion of Look thru Owners earnings is one of Buffett’s greatest contributions.