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Dear Fellow Investor,
When you listen to Warren Buffett speak, you can always take away a few words of wisdom.
In fact, if most of us had the opportunity to have listened to him between 1964 and 2012, as his Berkshire Hathaway returned more than 586,000% of value, most of us wouldn’t be worrying about money today.
If you listen to the billionaire often enough – as we do – the message is always a simple one.
You don’t have to be an omnipotent guru.
You just need to buy and hold sizable, growing companies with consistently strong business models that are easy to understand.
He’s looking to buy great stocks when everyone else is too afraid to buy. In fact, to find such companies, he’s looking for the following criteria with stocks:
- Simple companies that are easy to understand
- Companies with predictable and proven earnings
- Companies that can be bought at a reasonable price
- Companies with “economic moat,” or a unique advantage over its competition.
For example, the recipe of Coca-Cola is not easily replicable… It has a distinct competitive advantage, and cannot be knocked off its high perch.
“I look for companies that have a business we understand; favorable long-term economics; able and trustworthy management; and a sensible price tag. We like to buy the whole business or, if management is our partner, at least 80%. When control-type purchases of quality aren’t available, though, we are also happy to simply buy small portions of great businesses by way of stock market purchases. It’s better to have a part interest in the Hope Diamond than to own all of a rhinestone,” he notes.
Read on to find out some of his top criteria for spotting opportunity...
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No. 1 – Simple Businesses that He Understands
While not easily quantifiable, an investor must fully understand a business before investing in it. If you have a problem explaining it to yourself in simple terms that even a child can understand, or if it’s just too complex, you may want to avoid the investment.
As the billionaire explains, “What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”
No. 2 – Predictable and Proven Earnings
“If the company has operated with consistent earnings power and if the business is simple and understandable, Buffett believes he can determine its future earnings with a high degree of certainty. If he is unable to project with confidence what the future cash flows of a business will be, he will not attempt to value the company. He’ll simply pass,” as pointed out in The Warren Buffett Way.
TheoTrade
Beyond Nvidia: An Unknown Tech Powerhouse
Don here, and we both know Nvidia is the biggest story in today’s stock market by far…
Their groundbreaking chips are the backbone of today’s unstoppable A.I. revolution…
Can you get rich from Nvidia?
You might be too late…
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While you still can, discover the secrets behind…The Genesis Cog...
No. 3 – Can the stock be bought at a reasonable price?
Buffett’s goal has always been to identify stocks that can earn above-average returns, and then buy the stock at prices below current value. In fact, as Buffett noted in 1988, “Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised...”
No. 4 – Does the company have economic moat?
If I handed you $1 billion, could you duplicate your favorite company? Or, if I handed you $100 billion could you dethrone Coca-Cola, Google, or Apple’s market share with the iPhone.
If you could not dethrone a company, that company has strong moat, including Coca-Cola, Harley Davidson, Apple, Facebook, McDonald’s, Disney, Google or Amazon.
To quantify how much economic moat a company may have, we begin testing profit margins of the companies. If a moat exists, the business should be able to raise prices without losing market share. Otherwise, margins would decrease in a price war.
Paradigm Press
[Urgent] Starlink Set For The Largest IPO In History?
He turned PayPal from a tiny, off-the-radar startup… to a massive $64 billion giant.
Then, he did it again with Tesla… which is up more than 19,500% since 2010.
For perspective, that turns $100 invested into almost $20,000!
And now, Elon could be set to do it for the third and final time… with what might be his biggest breakthrough yet.
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Do you follow any of Buffett's strategies when looking for stocks to buy? Are there any other famous traders who's methods you swear by? Hit "reply" to this email and let us know!
