What did Warren Buffett say about PE ratio?

Warren Buffett on the PE Ratio: What Really Matters in Valuation

It’s a common habit among investors: check the P/E ratio, compare it to the market, maybe screen for “cheap” stocks based on low earnings multiples. But Warren Buffett has long challenged this reflex. In his 2000 letter to Berkshire Hathaway shareholders, Buffett made a striking statement that still resonates: “Common yardsticks such as dividend yield, the ratio of price to earnings or to book value, and even growth rates have nothing to do with valuation.”

At first glance, that sounds radical. After all, the PE ratio is one of the most widely used tools in investing. But Buffett wasn’t dismissing math—he was redirecting focus. His point was about value in its truest sense: what a business is worth based on its future cash flows, not arbitrary multiples. For Buffett, valuation isn’t about matching numbers to benchmarks; it’s about understanding the quality of the underlying business, its durability, pricing power, and long-term earning potential.

He famously compared investing to buying a farm—not by the acre or the tractor, but by the productivity of the land. The same applies to stocks. A low PE ratio means little if the company’s competitive advantage is crumbling. Conversely, a high multiple might be justified if the business can reinvest profits at high rates for decades.

Berkshire’s purchases over the years reflect this philosophy. Whether it was buying Coca-Cola in the late '80s or Apple decades later, Buffett wasn’t chasing low multiples—he was chasing owner earnings, pricing power, and predictable returns.

So while the PE ratio isn’t meaningless, Buffett reminds us it’s not the compass. The real metric? How much cash a company can generate for owners, year after year. In a world obsessed with shortcuts, that timeless insight still stands.