In my previous article titled “Using Google Docs to track your watchlist stocks“, I introduced how Google docs (spreadsheets) can be used to get current stock prices and various other parameters to manage a watch list of stocks. In this article I talk about the concept of ‘look-through earnings’ made popular by Warren Buffett and present you a Google spreadsheet that automates the calculations.
Warren Buffett talked about the concept of ‘Look-through earnings’ in his share holder letters. In his 1991 letter, he showed how he computed the look-through earnings. Here is an extract from that letter “We also believe that investors can benefit by focusing on their own look-through earnings. To calculate these, they should determine the underlying earnings attributable to the shares they hold in their portfolio and total these. The goal of each investor should be to create a portfolio (in effect, a “company”) that will deliver him or her the highest possible look-through earnings a decade or so from now. An approach of this kind will force the investor to think about long-term business prospects rather than short-term stock market prospects, a perspective likely to improve results.”