How to Invest like Warren Buffett

1. High ROCE + Low Debt
2. Predictable Earnings
3. Profits generate a lot of Cash Flows
4. Uncomplicated Business (you can understand)
5. Strong Brand + Pricing Power
6. Managers are also Owners of Business

"Mr. Buffett, what types of companies will you purchase in the future?"

Buffett is often asked what types of companies he will purchase in the future.

First, he says, he will avoid commodity businesses and managers in which he has little confidence.

What he will purchase is the type of company that he understands, one that possesses good economics and is run by trustworthy managers. 

"A good business is not always a good purchase,"  Buffett says, "although it is a good place to look for one."

For Buffett, the activities of a common-stock holder and a businessperson are intimately connected.  Both should look at ownership of a business in the same way.  "I am a better investor because I am a businessman," confesses Buffett, "and a better businessman because I am an investor."

Are you Mr. Market or Mr. Buffett? Rewire yourself to Invest like Mr. Buffett.

Warren Buffett's Investment Advice: Why It's So Hard to Follow

by Carlos Portocarrero on 18 March 2010

A year ago, I wrote a piece called Cash is King: Now What Should I do With It? 

After going through all the responsible options of what I could do with our pile of cash, I added one last one: what if I just threw it in the stock market and tried to double it?

Obviously, the fear of getting stabbed and divorced by my wife told me that this wasn't worth it—the risk was too high.

But you always wonder...what if...?

You'll see that the market had just bottomed out and was on a path to a steady recovery. Maybe it wasn't such a crazy idea to invest that pile of cash after all.

What Would've Happened

The day I published the story, the S&P 500 was at around 814. If I would've invested $10,000 in the S&P, I would've bought just over 12 "shares." Today, those "shares" would be worth $14,238. That's a 42% return in just under a year—an outstanding return.

What this Has to do With Warren Buffett

I've said this before many times: I'm a huge fan of Warren Buffett. I think his mix of intelligence, patience, and quirkiness is admirable. And one of his most famous sayings applies to my whole dilemma of investing (or not investing) my pile of money a year ago:

Be greedy when others are fearful and fearful when others are greedy

Back in March 2009, everyone was scared. From mutual fund managers to your average mom and pop store—we were all scared. No one knew what was going to happen to the economy and the stock market had just annihilated millions of dollars of people's money. It was the perfect time to put Warren Buffett's axiom to the test.

But that's where the problem lies: I was one of the people that was scared. There was no way I was putting all my hard-earned money into a machine that so many were saying was broken and had already cost so many people their life's savings.

And this is why Warren Buffett commands so much respect: he not only talks the talk, he walks the walk. He reacts differently than the rest of us to these situations: he trusts his instincts and doesn't get caught up in the panic that most of us do. And believe me, back then there was quite a bit of panic.

This is why we can't simply "invest like Warren Buffett." You have to have the cash, the brains, and the ability to overcome panic and fear. Forget about picking the right stocks—that's the least of it—the hardest part is not falling for all the hysteria and panic in the air.

The opposite is also true: the next time you see people acting greedy and feeling a little too comfortable with themselves and how much money they're making in the stock market—watch out. Something bad is about to happen.

http://www.wisebread.com/warren-buffetts-investment-advice-why-its-so-hard-to-follow

The Investment Secrets of Warren Buffett

BRINGING IT ALL TOGETHER

The remarks of Warren Buffet and analysis by Buffett authors suggest that, at the very least, Warren Buffett looks at the following aspects of a corporation and its operations. They can be put in the form of questions that any sensible investor should ask before considering a stock investment.

BASIC QUESTIONS TO ASK

1. Does the company sell brand name products that are likely to endure?
2. Is the business of the company easily understood?
3. Does the company invest in and operate businesses within its area of expertise?
4. Does the company have the ability to maintain or increase profitability by raising prices?
5. Is the company, looking at both long-term debt, and the current position, conservatively financed?
6. Does the company show consistently high returns on equity and capital?
7. Have the earnings per share and sales per share of the company shown consistent growth above market averages over a period of at least five years?
8. Hs the company been buying back its shares, and if so, has it bought them responsibly?
9. Has management wisely used retained earnings to increase the rate of return to shareholders?
10. Is the company likely to require large capital sums to ensure continuing profitability?

See case studies.

This would only be the first stage of the process. The next, and most important question, is determining the price that an investor such as Warren Buffet would pay for the stock, allowing for the margin of safety.

http://www.buffettsecrets.com/bringing-it-all-together.htm

In 1992, Warren Buffett said that:

‘Leaving question of price aside, the best business to own is one that over an extended period can employ large amounts of capital at very high rates of return. The worst company to own is one that must, or will, do the opposite – that is, consistently employ ever-greater amounts of capital at very low rates of return.’

Buffett Investing = Value + Growth

Buffett-style Investing

Value Investing and Growth Investing are joined at the hip

The main message from value investing strategies is to invest with low downside risk.  

If a stock satisfies this criterion, you should then consider its growth in earnings to implement a value-plus-growth strategy (Buffett-style investing).

The focus in value investing is on the past, the focus in growth investing is on the future, and the focus in Buffett-style investing is on both the past and the future.

You should also pay special attention to management quality, because high-quality management is the source of growth in Buffett-style investing.

To implement the above strategy, you should compute the stock's intrinsic value and compare it with the stock's price.

As a general rule of thumb, if the price is about half the intrinsic value, it is worth investing in that stock.



The Renaissance Investor

There is more to Buffett than simply value and growth investing.

Buffett engages in

• arbitrage investing, 
• investing in silver futures, 
• betting on oil, 
• forward trading in foreign currencies, 
• managing a large number of wholly owned subsidiaries, and 
• writing derivative contracts.

He frequently narrates investment-relevant stories from other fields such as

• psychology, 
• sports, 
• country music, and
• life in general.

Given his broad knowledge and his deep understanding of investment-related topics, it is preferable to call him a renaissance investor rather than attempting to pin him down under more limiting monikers.

How to Make Money The Buffett Way

http://www.equitymaster.com/ptmail/sep09/buffet_newsubs.html

Stop wasting so much time and energy trying to find 'that' perfect stock. Instead discover...





How to Make Money
The Buffett Way
Simply put, we will be identifying companies that are doing simple businesses that can be easily understood, have consistent earnings history and sustainable growth path, are managed by honest and competent people, and whose stocks are available at attractive prices with an adequate margin of safety. 
After all, Buffett has made his entire fortune - US$ 37 bn at last count - following these very principles of investing.

And he's achieved tremendous success with not one, not two, but several stocks that have multiplied several times over a number of years. 
Like his investment in Coca-Cola, where every 100 dollars he invested in 1988 now stands at nearly 1,500 dollars...or simply put, an investment that has multiplied 15 times in around 21 years! See this...


Data Source: Yahoo Finance
Among other reasons, the key factor that prompted Buffett to buy Coca-Cola (as he later clarified) was that he believed in the simplicity and sustainability of its business.
But before that...

You know, the 15 times return on Coca-Cola is just among the lesser returns that Buffett has made over the years. Washington Post, the newspaper company that he started acquiring in 1973, has till date multiplied his money a whopping 81 times! And this is keeping out the significant dividends that the company has paid out over these years.


Data Source: Yahoo Finance
As per the reasoning he later offered, Buffett bought Washington Post simply because the company, apart from doing good business, was selling at a much lower price than its true business value.

'The Value Investor' will emulate Buffett's mantra of buying stocks when they are selling cheap as compared to their true worth.

Another of Buffett's investments that turned extremely successful was 'Gillette', the shaving products major. Buffett's simple reasoning to buy Gillette can be summed up in his own words - "I go to sleep in peace every night realising that every morning when I wake up, millions of men will wake up with me and shave."

Not to mention that Buffett multiplied his investment in Gillette almost 9 times in 14 years.

So How Can Buffett's Teachings Help You Build A Portfolio
That Can Multiply Your Wealth Several Times
Over The Next Five To Ten Years?
Now For Your Biggest Question...
"Why Should I Do This?"
Okay, let us put it the other way - what could be the opportunity loss for you for not practicing 'The Value Investor' strategy and otherwise following the herd?

See this chart...


Data Source: Berkshire Hathaway's 2008 annual report
The above chart depicts the increase in book value per share of Buffett's company Berkshire Hathaway vis-à-vis the performance of S&P 500 during the period 1964 to 2008.

While the S&P 500 multiplied by around 42 times during this period, Berkshire's book value multiplied 3,400 times!