Berkshire requires a 25–50% discount to intrinsic value before buying.
Buffett Quality Checklist
✗ROE >15% consistently (≥7 of last 10 years)
✓Free cash flow positive (≥8 of last 10 years)
✓Conservative leverage — Debt/Equity below 1
✓Revenue growing at CAGR >5%
✓EPS growing at CAGR >5%
10-Year Financial History — SEC EDGAR 10-K Filings
Year▲
Revenue▲
Net Income▲
FCF▲
Owner Earnings▲
ROE▲
Net Margin▲
LT Debt▲
Cash▲
2016
$7.5B
$1.9B
$3.3B
$1.8B
11.5%
25.3%
—
$10.8B
2017
$8.6B
$2.4B
-$1.2B
$2.2B
12.7%
27.3%
—
$14.2B
2018
$10.1B
$3.5B
$11.9B
$3.2B
17.0%
34.6%
—
$27.9B
2019
$10.7B
$3.7B
$8.6B
$3.3B
17.0%
34.5%
$7.4B
$29.3B
2020
$11.7B
$3.3B
$6.2B
$3.1B
5.9%
28.2%
$13.6B
$40.3B
2021
$18.5B
$5.9B
$1.2B
$5.5B
10.4%
31.6%
$18.9B
$63.0B
2022
$20.8B
$7.2B
$1.1B
$6.9B
19.6%
34.6%
—
$40.2B
2023
$18.8B
$5.1B
$18.9B
$5.2B
12.4%
26.9%
—
$43.3B
2024
$19.6B
$5.9B
$2.0B
—
12.3%
30.3%
—
$42.1B
2025
$23.9B
$8.9B
$8.8B
—
17.9%
37.0%
—
$46.0B
Warren & Charlie
Buffett / Munger — quality, moat & valuation
## SCHWAB CHARLES CORP (SCHW) — Investment Memo
### 🐂 The Bull Case *(Warren's voice)*
- **Moat durability**: Schwab sits on **$7T+** in client assets. Switching costs are brutal – moving millions of accounts is a nightmare. The integrated brokerage, bank, and custody platform is a fortress.
- **Exceptional economics**: The low-cost deposit base funds a high-grade bond portfolio. In 2025, net interest margin hit **37.0%** – a spread near zero-cost deposits vs. bond yields. ROE reached **17.9%**, and asset management fees grow with markets.
- **Attractive entry price**: If the market cap falls to **~$180B** (≈**$102/share**) – a **35% discount** to the DCF estimate – the business becomes genuinely appealing. At that level, the market prices in permanent rate pain that may never arrive.
### 🐻 The Bear Case *(Charlie inverts)*
- **Structural threat #1 – Prolonged low rates**: Net interest income collapses from **37% margin** to **15-20%**. Earnings halve. *Not a recession – a permanent shift in the rate regime.*
- **Structural threat #2 – Deposit flight / bond panic**: The AFS portfolio holds **long-duration bonds with massive unrealized losses** (likely **$15B+**). A sudden depositor run forces fire sales. Liquidity dries up. *2023 regional bank crisis, but bigger.*
- **Structural threat #3 – Regulatory kill**: Payment for order flow banned. Trading revenue vanishes. *Margin shrinks another 5 points.*
- Most likely over 5 years: low rates return as the economy slows. *Schwab’s moat is a rate-cycle hostage – not a permanent competitive advantage.*
### 💰 Valuation & Margin of Safety
- **DCF estimate**: **$156.43/share** – *but the 13.2% FCF growth is fantasy*. FCF has been wildly erratic (e.g., **$2.0B** in 2024 vs. **$18.9B** in 2023). Sustainable FCF power is closer to **$6B**.
- **Conservative intrinsic value**: **$90–$100/share** (10% discount, 3% terminal, normalized FCF).
- **25% margin of safety entry**: **$67–$75/share**
- **50% margin of safety entry**: **$45–$50/share**
- Current price (assumed >$100): *Expensive relative to conservative intrinsic. No margin of safety for a permanent capital loss.*
### Verdict: PASS
*The switching-cost moat is real, but the business model is a leveraged bet on interest rates with opaque accounting and erratic cash flows. At current prices, there is no margin of safety for a permanent capital loss – and the upside is capped by structural threats. We’d rather own a simple insurer.*
Data sourced from SEC EDGAR XBRL filings (10-K only). For educational purposes — not investment advice.