Pick Stocks like Warren BuffettThere will be little doubt in any investors mind that if we can do the ‘best stock picks‘ like Warren Buffett then we can think of matching the might of one of the best investor of this century.
Warren Buffett says, the most important seven words ever written about investment is by his teacher and mentor Benjamin Graham which says “Investing is most intelligent when it is most business like”.
Whether you are picking individual stocks or buying a business all together, the fundamentals that is required is the same. “This is
the single most important thing to understand about Buffett’s investment approach: Buying stocks means buying a business and requires the same discipline.”
the single most important thing to understand about Buffett’s investment approach: Buying stocks means buying a business and requires the same discipline.”
Generally 90% of investors involved in stock investment are all traders. Traders and Investors are not the same. Investors think like a business man before buying a share of a company and traders go by technical analysis of stock prices. It is not that technical analysis of stock price is not good for evaluating an investment, but evaluation of stock shall not be limited just to technical analysis (when stock prices fall buy shares, and when it rise sell it to make profit).
This is so simple, and everyone who has access to stock trading can do it (buy and sell). But investors do not just buy shares they considers “buying stocks is same as buying a business”. They evaluate a stock in a much wider scale than just technical analysis. We will discuss here those parameters (in addition to technical analysis) which Warren Buffett most likely uses to evaluate and decide his “best stock pick“. Warren Buffett would like his followers to get an answer to all the below question before they go ahead and buy a share.
How good is the Business of this company?
1. Is the business simple and understandable?
2. Does the business have a consistent operating history?
3. Does the business have favorable long-term prospects?
1. Is the business simple and understandable?
2. Does the business have a consistent operating history?
3. Does the business have favorable long-term prospects?
How good is the Management of this company?
4. Is management rational?
5. Is management candid with its shareholders?
6. Does management resist the institutional imperative?
4. Is management rational?
5. Is management candid with its shareholders?
6. Does management resist the institutional imperative?
How strong is the company; Financially?
7. What is the return on equity?
8. What are the company’s “owner earnings”?
9. What are the profit margins?
10. Has the company created at least one dollar of market value for every dollar retained?
7. What is the return on equity?
8. What are the company’s “owner earnings”?
9. What are the profit margins?
10. Has the company created at least one dollar of market value for every dollar retained?
Is the current stock price of the company is below its Intrinsic Value?
11. What is the value of the company?
12. Can it be purchased at a significant discount to its value?
11. What is the value of the company?
12. Can it be purchased at a significant discount to its value?
The answer to the above question requires time and careful analysis. Any body who buys stocks after answering all the above question then he can be considered as a true investor
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