Showing posts with label acquisition criteria. Show all posts
Showing posts with label acquisition criteria. Show all posts

Wednesday 13 May 2015

Here are Warren Buffett’s Six Acquisition Rules. Here Are 6 Rules For Investing Like Warren Buffett

Warren Buffett is unquestionably the greatest investor who has ever lived. He possesses an uncanny ability to choose incredible investments that explode in value over time.  This ability has earned him a place as the second wealthiest man alive today.
Despite his vast wealth, Warren continues display a public persona of humility and common folk wisdom.  This attitude has provided him the respect of working people as well as the ultra rich; a very rare combination in this day and age. He does not believe in personal or family dynasties and has pledged to give away 99% of his wealth in his will.
buffet

How Did Buffett Get So Wealthy?
Buffett learned his investing skills from Benjamin Graham, David Dodd and Phil Fisher.  He claims to be 85% Graham and 15% Fisher is his stock picking philosophy.
His basic investing concepts are the following:
1.  Look at stocks as individual businesses
2.  Use the market’s fluctuations to your advantage
3.  Be certain that there is a margin of safety built into all your investments. 
This stock picking method is widely known as value investing.
Value investing adheres to the idea of buying stocks that are under priced per fundamental analysis.  In other words, stocks are bought at a discount to their intrinsic proper market price.  This discount is what Buffett considered the margin of safety.
The best part about Buffett is his willingness to share his tactics and stock picking methods with everyone.  He really lays everything on the line so savvy investors are able to follow in his footsteps.  Not only does Buffett hold no secrets, he publishes a yearly investor letter that explains the minutia of his thought process.
His most recent letter carefully laid out the six things he insists upon prior to acquiring another company.  This criterion is easily applicable to every stock investor when choosing companies for investment.
buffet w

Here are Warren Buffett’s Six Acquisition Rules
 1. Size
Buffett does not mess with small companies. The company need to produce a minimum of $75 million in pre-tax earnings.
2. Consistency
He has no interest in speculation when it comes to earnings.  In other words, future earnings, management forecasts, and any other future projections are not considered when making decisions.  Earning ability MUST be proven and consistent to spark any interest.
 3. Little to No Debt
The bottom line is that Buffett hates debt. The company must be earning solid returns without taking on debt.  Debt, while needed in some circumstances, is a profit killer.  Let the company pay off its initial debt first and prove itself before placing your first dollar at risk.  When in debt, companies can take unwise risks during slow times.  This potential simply creates too much risk to make a safe investment.
4. Management
There needs to be an experienced management team already in place before an investment is made.  Buffett has no interest in supplying management to run the company.  Management should be pedigreed with experience in prior positions or trained from the company itself.  Buffett looks for smart, talented people who can solve or better yet avoid problems.
5. Simplicity
You must be able to fully understand the businesses you are investing in.  If the company or its business is too complicated, avoid it.   Obviously, this rule can be bent as a stock market investor. While it is best to understand a company and its business completely, it’s not a hard and fast rule.   This rule goes hand in hand with Peter Lynch’s mantra of buying what you know.
 6. The company must be listed with a price
While this Buffet rule is not applicable to average stock investors it is important to understand.  Buffett does not buy companies without an asking price.  This goes back to belief in only buying sure things.  Firms without an asking price require too much negotiation effort to be worthwhile to Buffett.  Individual investors can apply this rule by only investing in listed companies.  Avoid investing directly in firms that are private or not listed on a stock exchange.  While these firms can be wildly lucrative, the unknown risk factors are sky high.
jz and buffett

The Take Away
Warren Buffett is the greatest investor of all time.  Everyone can learn by studying his investing rules.  Make a point of reviewing his past writings and reading his yearly investor letters. The key to his most current wisdom is to avoid companies with debt and to embrace companies with consistent earnings.


By Manny Backus of TradingTips
Monday, March 16, 2015 4:12 PM EDT
http://www.talkmarkets.com/content/us-markets/here-are-6-rules-for-investing-like-warren-buffett?post=60935

Thursday 1 August 2013

How does Buffett make his picks? His 5 investment criteria.


● Free cash flow of at least $250 million.

● Net profit margin of 15% or more.

● Return on equity of at least 15% for each of the past three years and the most recent quarter.

● One dollar’s worth of shareholder equity created for every dollar of retained earnings over the past five years.


● Market capitalization of at least $500 million.


One more criterion is added to eliminate overvalued stocks: comparing our five-year discounted cash flow estimate with the current price.



"Many stock options in the corporate world have worked in exactly that fashion: they have gained in value simply because of management retained earnings, not because it did well with the capital in its hands. " ~ Warren Buffet
Warren Buffet once stated - "Unrestricted earnings should be retained only where there is a reasonable prospect - backed preferably by historical evidence or, when appropriate by a thoughtful analysis of the future - that for every dollar retained by the corporation, at least one dollar of market value will be created for owners. This will happen only if the capital retained produces incremental earnings equal to, or above, those generally available to investors." Hence for a booming business, the primary goal is to create 1$ in market for every 1$ of the retained earnings.

Read more at Buzzle: http://www.buzzle.com/articles/retained-earnings-calculation.html

Wednesday 17 March 2010

Some thoughts on Analysing Stocks (Keep It Simple and Safe).



Ideally a stock you plan to purchase should have all of the following charateristics:

• A rising trend of earningsdividends and book value per share.

• A balance sheet with less debt than other companies in its particular industry.

• A P/E ratio no higher than average.

• A dividend yield that suits your particular needs.

• A below-average dividend pay-out ratio.

• A history of earnings and dividends not pockmarked by erratic ups and downs.

• Companies whose ROE is 15 or better.

• A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.

Sunday 30 November 2008

The Master: Warren Buffett 7

Berkshire Hathaway Manufacturing, Retail and Services Subsidiaries

Beyond insurance, the manufacturing, retail and service group now consists of some 70 companies large and small, all successful in their own arena.

Subsidiary Name----Subsidiary Business
Acme Brick----Face brick and other building materials
Applied Underwriters ----Worker's compensation solutions
Ben Bridge Jeweler----Retail fine jewelry
Benjamin Moore----Architectural and industrial coatings - paint
Berkshire Hathaway Homestates Companies----Specialty property/casualty insurance
Borsheim Fine Jewelry----Retail fine jewelry
Buffalo News----Newspaper
Business Wire----Business news and information services
Central States Indemnity Company----Consumer credit insurance
Clayton Homes----Modular and manufactured homes
CORT Business Services----Rental furniture
CTB, Inc.----Agricultural equipment
Fechheimber Brothers----Safety equipment
Flight Safety International----Training for aircraft and ship operators
Forest River----Towable RVs and trailers
Fruit of the Loom----Textiles
Garan Incorporated----Children's clothing
Gateway Underwriters----Property and casualty insurance
GEICO----Property and casualty insurance
General Re----Reinsurance
H.H.Browne Shoe Co.----Work shoes, boots, casual footwear
Helzberg's Diamond Shops----Retail fine jewelry
Home Services of America----Residential real estate
International Dairy Queen----Licensing and servicing D.Q. stores
Iscar Metalworking Companies----Machine tools
Johns Manville----Insulation, roofing
Jordan's Furniture----Retail home furnishings
Justin Brands----Western boots, hats
Larson-Juhl----Custom picture frames
McClane Company----Food distribution, logistics
Medical Protective----Healthcare provider insurance
MidAmerica Energy----Production, supply, distribution of energy
MiTek Inc.----Engineered building products and services
National Indemnity Co.----Property/casualty insurance
Nebraska Furniture Mart----Retail home furnishings
NetJets----Fractinal jet ownership
The Pampered Chef----Direct marketer, kitchen products
Precision Steel Products----Steel service center
RC Willey Home Furnishings----Retail home furnishings
Scott Fetzer Companies----Subsidiary group includes Kirby Vacuums, Campbell Hausfeld, World Book
See's Candies----Boxed candies, confectionary
Shaw Industries----Flooring, carpet
Star Furniture Company----Retail home furnishings
TTI, Inc----Transportation equipment components
United States Liability Insurance Group----Specialty insurance products
Wesco Financial----Holding company
XTRA Corporation----Transport equipment leasing


What do all Berkshire Hathaway companies have in common?

  • They are profitable, safe and solid.
  • They are easy to understand with simple business models.
  • They produce plenty of cash flow to reinvest.
  • They are unique businesses with strong market positions and franchises.
  • They have solid, trustworthy management.
  • They were bought at reasonable prices.
We ordinary value investors can't assemble this kind of portfolio, but we can learn from what makes Berkshire Hathaway and its master tick.


Also read:
What do all Berkshire Hathaway companies have in common?

Berkshire Hathaway's Acquisition Criteria: Telling it like it is
Take a look at the following set of "acquisition criteria," straight from the 2006 Berkshire Hathaway Annual report. Straight, clear, to the point - and never before have we seen anything like this - including the commentary - in a shareholder report.


Also visit:
The Master: Warren Buffett 9 (9/9)
The Master: Warren Buffett 8
The Master: Warren Buffett 7
The Master: Warren Buffett 6
The Master: Warren Buffett 5
The Master: Warren Buffett 4
The Master: Warren Buffett 3
The Master: Warren Buffett 2
The Master: Warren Buffett 1

Monday 24 November 2008

Berkshire Hathaway's Acquisition Criteria: Telling it like it is

Take a look at the following set of "acquisition criteria," straight from the 2006 Berkshire Hathaway Annual report. Straight, clear, to the point - and never before have we seen anything like this - including the commentary - in a shareholder report.

ACQUISITION CRITERIA

We are eager to hear from principals or their representatives about businesses that meet all of the following criteria:

1. Large purchases (at least $75 million of pre-tax earnings unless the business will fit into one of our existing units).
2. Demonstrated consistent earning power (future projections are of no interest to us, nor are "turnaround" situations).
3. Businesses earning good returns on equity while employing little or no debt.
4. Management in place (we can't supply it).
5. Simple businesses (if there's lots of technology, we won't understand it).
6. An offering price (we don't want to waste our time or that of the seller by talking, even preliminary, about a transaction when price is unknown).

The larger the company, the greater will be our interest. We would like to make an acquisition in the $5-20 billion range. We are not interested, however, in receiving suggestions about purchases we may make in the general stock market.

We will not engage in unfriendly takeovers. We can promise complete confidentiality and a very fast answer - customarily within five minutes - as to whether we're interested. We prefer to buy for cash, but will consider issuing stock when we receive as much in intrinsic business value as we give. We don't participate in auctions.