Warren Buffett Secrets

• Don’t think about the stockmarket

"We look at individual businesses and we don’t think of stocks as little items that wiggle around in the paper. We think of them as parts of businesses."
"Your goal as an investor should be simply to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher, five, ten, and twenty years from now".

Businesses that you understand

When you do this, you become a more a more savvy investor, better able to judge the progress of the company.

Strong economic moat

Look for companies that have a protection against their competitors. This could be geographical, patents, brand name, entry costs, and so on. When companies have a strong economic moat, then financial forecasts can be more reliable.

Return on equity

If you think of equity as your money, then return on equity is a measure of how well management is doing with your money. It is virtually impossible for a medium to long- term investment to be satisfactory if the return on equity is low. I look for companies that have 15 percent or more return on equity and return on capital.

Sales and earnings growth

You can still get good returns from companies that have poor growth figures if they pay out most of their earnings as dividends or use them for share buybacks. Nevertheless, at least a reasonable level of growth is often important for the management and employees to have a sense of achievement since this translates into higher productivity and less unrest. Apart from growth of earnings, I also look for companies with a high stability in the way they grow.

Not too much debt

If debt is too high, then the company is vulnerable to credit squeezes and may have difficulty in raising money for expansion. Look at the debt to equity ratio, the current ratio and the quick ratio.

The following quote is a good way to end this brief look at the investing methods of Warren Buffett:

We're not pure economic creatures, and that policy penalizes our results somewhat, but we prefer to operate that way in life. What's the point of becoming rich if you're going to have a pattern of operations where you continually discard associations with people you like, admire, and find interesting in order to earn a slightly bigger figure?