In 1983, Buffett wrote down 13 owner-related business principles explaining Berkshire's Approach.
I used them to come up with 7 General Principles for Investors👇
I used them to come up with 7 General Principles for Investors👇
1. Return on Capital
Over the long run, your return will resemble the rate of return on capital.
The longer you hold the investment, the closer you'll get to that number.
So, focus on companies that earn a lot of cash and can reinvest it at high rates in the business.
Over the long run, your return will resemble the rate of return on capital.
The longer you hold the investment, the closer you'll get to that number.
So, focus on companies that earn a lot of cash and can reinvest it at high rates in the business.
2. Per Share Progress
A company becomes a good investment if it's focused on growing intrinsic value per share instead of company size.
Find companies and management teams that think the same way—prioritizing shareholder value over company size.
A company becomes a good investment if it's focused on growing intrinsic value per share instead of company size.
Find companies and management teams that think the same way—prioritizing shareholder value over company size.
3. Retained Earnings
Retained earnings are a good thing.
However, they can turn into a burden when the management invests them for a return that yields less than 1$ for every 1$ spent.
In that case, you'd prefer getting paid a dividend.
Pay attention to capital allocation.
Retained earnings are a good thing.
However, they can turn into a burden when the management invests them for a return that yields less than 1$ for every 1$ spent.
In that case, you'd prefer getting paid a dividend.
Pay attention to capital allocation.
4. Skin in the Game
No one should have better judgment on the company than its CEO.
If a company is a good investment going forward, the CEO should be interested in owning stock.
If he doesn't, the opportunity can't be that good.
"We eat our own cooking" - Warren Buffett
No one should have better judgment on the company than its CEO.
If a company is a good investment going forward, the CEO should be interested in owning stock.
If he doesn't, the opportunity can't be that good.
"We eat our own cooking" - Warren Buffett
5. Falling Prices are Good News
If you go shopping for groceries, you rather buy the apple for $1 than 5$.
For some reason, people think supply and demand of the stock market works the other way around.
Falling prices are good news. Use them to your advantage.
If you go shopping for groceries, you rather buy the apple for $1 than 5$.
For some reason, people think supply and demand of the stock market works the other way around.
Falling prices are good news. Use them to your advantage.
6. Read between the Lines
When analyzing management, read between the lines to figure out how management thinks.
Are they only mentioning the positives? Do they use a lot of buzzwords?
Pay attention to the details of communication.
When analyzing management, read between the lines to figure out how management thinks.
Are they only mentioning the positives? Do they use a lot of buzzwords?
Pay attention to the details of communication.
7. Accounting
Common sense over accounting rules.
Some accounting rules don't really make sense. Think of Munger's favorite metric, EBITDA ("Bullshit-Earnings).
Use common sense rather than sticking to flawed accounting rules.
Common sense over accounting rules.
Some accounting rules don't really make sense. Think of Munger's favorite metric, EBITDA ("Bullshit-Earnings).
Use common sense rather than sticking to flawed accounting rules.
That's it for today!
If you enjoyed it, please Like and Retweet this Thread so more people can see it!
Follow me @MnkeDaniel to learn more about Investing.
Have a great day!
If you enjoyed it, please Like and Retweet this Thread so more people can see it!
Follow me @MnkeDaniel to learn more about Investing.
Have a great day!
If you want to learn more about Investing, check out my Website!
You get:
- Company Deep Dives
- Investing Pitches
- An Archive of Investing Resources (1000s of free pages of investing wisdom)
- The Best Book Recommendations
danielmnke.com
You get:
- Company Deep Dives
- Investing Pitches
- An Archive of Investing Resources (1000s of free pages of investing wisdom)
- The Best Book Recommendations
danielmnke.com
جاري تحميل الاقتراحات...