Warren Buffett Stocks: How to Invest Like the Oracle of Omaha By Patrick Vail
What Buffett has above all else is discipline. His philosophy is based on patience.
As a value investor, Buffett's goal is to identify companies the market has undervalued or companies that are trading cheaply compared to their intrinsic value.
Once he finds them, he buys them and holds on to them for the long term while their value steadily increases over decades.
Warren Buffett's Rules for Successful InvestmentsRule No. 1: Consistent Performance Warren Buffett won't even consider a company unless it's been around for 10 years or more and can demonstrate a record of consistent performance.
One metric Buffett uses to track performance is return on equity (ROE). ROE measures the rate of return on the money invested by stockholders and retained by the company in profitable times, demonstrating a company's ability to generate profits from shareholders' equity (net assets). In other words, ROE shows how well a company uses investment funds to generate growth.
Rule No. 2: High IncomeBuffett has said that one of the best ways to stay wealthy is to invest in companies with a
stable business and a high dividend. Dividend stocks help to balance out a growth-oriented portfolio, which is what you'll have if you're following Buffett's footsteps. Your portfolio will be more diverse, and you'll be insulated a bit from market volatility.
The important thing to look for is dividend growth. As the company grows and the stock price goes up, does the dividend rise? Look for companies that have increased their dividend each of the last several years.
Rule No. 3: Manageable Long-Term DebtWarren Buffett, as a general rule, doesn't like debt -- especially long-term debt. The
debt-to-equity (D/E) ratio tells investors what proportion of equity and debt the company is using to finance its assets.
A high D/E ratio can lead to greater volatility in a company's earnings. But what's really important is
how much debt a company has compared to its competition in the same industry. All of Buffett's positions take a prudent approach to debt.
While he only speaks about debt in a general sense, it is believed that Buffett is most concerned with a
company's ability to repay its debts. To figure this out, simply
divide the long-term debt by profit. Rule No. 4: The "Economic Moat"High profit margins relative to a company's closest competition are extremely important. This creates what is known as an "economic moat," a term coined by Buffett to describe a company's competitive advantage.
Economic moats help defend against competitors that try to gain market share by imitating successful products. In short, an industry leader itself can be an imposing barrier to entry, and those are companies Buffett thinks have value.
Rule No. 5: Sound Management Buffett has said that investors should buy stocks as though they are buying the company. Buying stocks, therefore, is a vote of confidence in how that company is managed.
Evidence of good management, in Buffett's view, is when management's actions deliberately benefit shareholders. This includes things like share buybacks, wise use of retained earnings (transforming earnings into market value), and focusing on the core business. In general, it's when management acts as a good shepherd for its shareholders' money.
http://moneymorning.com/2012/05/01/warr ... -of-omaha/
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
