For instance, if you look at Moody’s (MCO), the stock, it may appear cheap, about 15 times 2007 earnings. Not bad for a legal duopoly. But MCO’s earnings are up tremendously since 2004. I’d argue that earnings since 2004 were bubbled by the housing-derivatives-easy-credit bubble. Thus when valuing MCO I’d put little faith in 2007-2008 numbers and go back to more normal times with 2004 EPS of 1.50 (as opposed to $2.50 MCO earned in 2007).

I’d gladly pay 14-15 times earnings for this still incredible business, thus Moody’s will go on my “Stocks I’d Love to Own” list at $21-22. Yes, stock has to decline 40% for me to become interested. Am I too conservative? Will I miss buying a great company? Possibly, but there are plenty of other great companies where this one came from.