“It's not what you buy, it's what you pay. And success in investing doesn't come from buying good things, but from buying things well. And if you don't know the difference, you're in the wrong business.” - Howard Marks
Even if you find a great company with solid fundamentals (e.g., high ROIC - Return on Invested Capital, ample growth opportunities, impressive management, competitive advantage), it may not be a good investment if you pay too much for the company's stock.
Well, how much is too much? If you buy a stock when it is trading at its historical highest P/E (Price divided by Earnings per Share) and/or highest P/B (Price divided by Book Value per Share) due to heightened optimism, cheap money flow, or some one-off boost in earnings, you are most likely to pay too much for the stock.
Sometimes, even a company with bad fundamentals (e.g., low ROIC, low market share, declining margin) can be a good investment when the market penalizes it more than it deserves.
It’s not always straightforward, but it’s important to know the difference between buying good things vs buying things well. The latter matters more in getting a good return out of your investment.