Thursday, 27 February 2014
Warren Buffett is Chairman of Berkshire Hathaway Inc., a USA holding company, with interests in several subsidiaries engaged in a number of diverse business activities.
Berkshire Hathaway Inc. also has holdings or owns several large private companies.
When Buffett invests, he sees a business whilst most investors see a stock price.
According to Buffett, the investor and the business person should look at the company in the same way, because they both want essentially the same thing.
The business person wants to buy the whole company and the investor wants to buy portions of the company.
Buffett believes that in the long run, the price of the stock should approximate the change in value of the business.
He believes it is foolish to use short-term prices to judge a company's success.
Instead, he lets his companies report their value to him by economic progress.
The Warren Buffett Method of 12:
1. Is the business simple and understandable?
2. Does the business have a consistent operating history?
3. Does the business have favourable long-term prospects?
4. Is management rational?
5. Is management candid with its shareholders?
6. Does management resist the institutional imperative?
7. Focus on return on equity, not earnings per share!
8. Calculate "owner earnings."
9. Look for companies with high profit margins.
10. For every dollar retained, make sure the company has created at least one dollar of market value.
11. What is the value of the business?
12. Can the business be purchased at a discount to its real value?
“Theory without practice cannot survive and dies as quickly as it lives... [but] he who loves practice without theory is like the sailor who boards ship without rudder and compass, and never knows where he may cast.” - Leonardo da Vinci