In a nutshell, Buffett looks for companies that have strong brands (which promotes premium pricing) that run understandable businesses with a good return on capital without a lot of debt. Profits should show up in cash flow, earnings should be predictable, and management needs to be owner-oriented.
Robert Hagstrom, author of The Essential Buffett: Timeless Principles For The New Economy, summarizes Buffett's approach:
--Analyze a stock as a business
--Demand a margin of safety
--Manage a focused portfolio
--Guard against speculation and emotion
One of Buffett's famous aphorisms is to "buy when others are fearful and sell when others are greedy." John Train author of The Money Masters, helps to summarize Buffett's outlook in his 1980 book: "Most of the time, most businesses are not worth what they are selling for, but on rare occasions the wonderful businesses are almost given away. When that happens, buy boldly, paying no attention to current gloomy economic and stock market forecasts."
Thursday, February 26, 2009
Forbes has a decent article for those new to Buffett. An excerpt: