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.
