Warren Buffett is a billionaire investor, a businessperson and one of the humanity’s greatest philanthropists. He is also the second or third richest man in the world and a guru to millions of investors of all flavours.
His philosophy of value investing has been shown conclusively to work in all types of markets and financial environments, and has never gone out of style. Following his simple strategies, he has built the holding company Berkshire Hathaway to an investment vehicle with a market value of $196 billion. As the largest shareholder and CEO, his net worth is about $52 billion. Warren Buffett made his reputation as the “world’s greatest investor” by taking the long view, buying quality stocks with good earnings power and staying with them through both bull and bear markets. Here’s his simple investment advice:
- Is the company in an industry with good economics, rather than in an industry that competes on price.
- Does the company have a consumer monopoly or brand name that commands loyalty?
- Can any other company with an abundance of resources compete successfully with it?
- Are the earnings on an upward trend with good and consistent margins?
- Is the debt-to-equity ratio low or is the earnings-to-debt ratio high? This means that the company can repay its debt even in years when earnings are lower than average.
- Does the company have a high and consistent return on invested capital?
- Does the company retain earnings for growth?
- Does the company reinvest earnings in good business opportunities? Does management have a good track record of profiting from these investments?
- Is the company free to adjust prices for inflation?
- He also asks at what price is the business a bargain. The answer is when it provides a higher rate of compounded return relative to other available investment opportunities.
What do you think of Warren’s advice? Can you see how you can use it in your own investments? Let us know below.