Warren Buffett's Checklist

Warren Buffett

  • Is the business simple and understandable?
  • Does the business have a consistent operating history?
  • Does the business have favorable long-term prospects?
  • Is management rational with its capital?
  • Is management candid with shareholders?
  • Does management resist the "institutional imperative" i.e. groupthink?
  • Is the focus on return on equity?
  • What is the rate of "owner earnings"?
  • Is there a high profit margin?
  • Has the company generated at least one dollar of market value for every dollar retained?
  • Financial Analysis
    • Focus on return on equity, not earnings per share
    • Calculate owner earnings - this is essentially free cash flow
    • Look for companies with high profit margins
    • Can you see how good they will be against the competition 10 years from now?
  • What is the value of the business?
  • Can it be purchased at a significant discount to its value? This is the last and most important question.