Over the last century (100 years) how has stocks and bonds performed? The answer is 8% returns for stocks and 6% for bonds. So when looking to invest in individual stocks or businesses, what kinda returns am I looking at? Definitely I'm looking at 8% or higher returns If an investments pays me 8% or less, I might as well save the time and effort by buying the index instead right? Therefore when I'm picking individual businesses I'm usually looking for something that's like 10% returns or better. Take a simple example of a hot dog stand business, if it makes $1,000 profits a year and doesn't have any earnings growth at all I'll probably value it at 10 times earnings, which is $10,000 for this small business. However my judgement my not be 100% correct, that's where we need some margin of safety. Therefore I'll pay only 8 times ......