The Warren Buffett Way(Summary)

The Warren Buffett Way

Buffett has been on the Forbes list for more then 30 years, he owns a company himself and he is also an investor. His company got rich eventually but how did he get rich in stocks when you’ve been in stocks for thirty years and still live in the same house? The answer is explained in this book.

Warren Buffett believes that it is the company that matters more then it’s stocks. People tend to forget the actual purpose of the stock market. The stock market is a place where people who can’t buy their own business intend to invest in another’s for profits in return. You’re not alone, he admits to have committed the same mistakes you have until he finally decided to wait for more then 2 years. This is when he started getting returns. How to find such companies is shown un this book.

Warren Buffet chooses one company every year to buy, you can do the same and concentrate on researching only one company.

How to find this company, will be explained.

To find this company you must look at it from 4 perspectives

Business quality

Management quality

Financial quality

Valuation

1.Business Quality

Quality exists if you notice it. You must notice it in the company itself. Ask yourself

What does this company sell?

What’s the competition?

Do they have competitive advantages at all?

Look around you. Go to the super market and buy a grocery company’s product. How is it? Do you see other supermarkets close by. Even better if you’re a teenager working in this supermarket, you know how they’re selling. However, it’s against the law if you find out about big news about this company and then start selling and buying at rapid rates. That is called fraud, insider trading. So, don’t cheat either!

Buy simple companies that you can rely on, important companies-coca cola,  apple, medical companies etc.  You can be assured that these companies won’t have their empires falling too easily.

2.Management Quality

Management quality means the quality of the staff, the ceo, the employees etc. Buffett looks at how these people think, that is if they are mean to their customers there’s a god chance they’re not going to provide a lot of return.

3.Financial Quality

There are a few things you need to remember if you’re looking into financial quality. That is,

 look at the debt the company is in.  Lesser the debt, the better,.

What is their return on equity.

Look for companies with more then 20% return on equity as suggested by the master himself.

Competition with price is not acceptable. Companies nowadays decrease and increase their prices rapidly to fight competition instead of creating new products, this means the profit margin will be low. Avoid these companies.

What are they returning. A  company should either be using their money to give their shareholders profits or pay dividends instead, their choice.

4.Valuation

Sometimes a stock can get overpriced and fall rapidly, this could go against your research, hence this principal is the most interesting and important of them all.  Intrinsic value-this value determines the average price at which a company is literally worth. If a stock is being sold  higher then it’s price, it will also be higher then it’s intrinsic value. Intrinsic value is an estimated value.  I have explained Intrinsic Value in another blog post. I will link it to you below.

The Warren Buffett Principals

1.Only buy big when it’s time to bet

2.Ignore the recessions

3.Hold onto a company forever if you know it’s worth

4.Choose only the best, don’t be lenient

5. Be an analyst

If the stock market required calculus and algebra, Buffett wouldn’t be where he is. He would be selling newspapers now. However he was smart enough to not get overwhelmed by the numbers, so should you.

How to find intrinsic value = https://saragawde.com/intrinsic-value/

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