We select our marketable equity securities in much the same way we would evaluate a business for acquisition in its entirety. We want the business to… - Warren Buffett

When returns on capital are ordinary, an earn-more-by-putting-up-more record is no great managerial achievement. You can get the same result personally while operating from your rocking chair. Just quadruple the capital you commit to a savings account and you will quadruple your earnings. You would hardly expect hosannas for that particular accomplishment. Yet, retirement announcements regularly sing the praises of CEOs who have, say, quadrupled earnings of their widget company during their reign — with no one examining whether this gain was attributable simply to many years of retained earnings and the workings of compound interest.

Most institutional investors in the early 1970s, on the other hand, regarded business value as of only minor relevance when they were deciding the prices at which they would buy or sell. This now seems hard to believe. However, these institutions were then under the spell of academics at prestigious business schools who were preaching a newly-fashioned theory: the stock market was totally efficient, and therefore calculations of business value — and even thought, itself — were of no importance in investment activities. (We are enormously indebted to those academics: what could be more advantageous in an intellectual contest — whether it be bridge, chess, or stock selection than to have opponents who have been taught that thinking is a waste of energy?)

What the wise man does in the beginning, the fool does in the end