Warren Buffet Investment Tenets [
fundamental value investing]
Business Tenets .
-- simple and understandable business .-- consistent
operating history.-- favorable long-term prospects.
-- Rationality ; allocation of capital in various stages
of company life cycle.-- Candor and correct financial reporting --
Institutional imperative to resist pressure from the market.
-- Focus on return on equity[ value added ] , not
earnings per share .-- Calculate "owner earnings" to get true
reflection of value.[ a company's net income plus depreciation,
depletion, amortization, less capital expenditures and working capital]
-- Look for companies with high profit margins.-- for every dollar
retained, company must create one dollar of market value.
-- Determine the Value [ calculated by the net
cash flows expected to occur over the life of the business discounted at
the appropriate interest rate ] ......." thus all
businesses , from buggy whip manufacturers to operator of cellular
phones become economic equals............" -- This
mathematical exercise is similar to valuing a bond - the predictability
of a company's future cash flow should take on a "coupon-like"
certainty that is found in bonds.
-- Buy at attractive prices. Can the business be
purchased at a significant discount [ sale ] to its value?
Charlie Munger who has been a partner / lawyer with
Buffett has the following rules for a successful value investment approach.
[See the recent book "Damn Right" – by Janet Lowe].