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“Charlie and I havenot learned how to solve difficult business problems,” Buffett admits.

In evaluating people, you look for three qualities: integrity,intelligence, and energy. If you don’t have the first, the othertwo will kill you.

I read annual reports of the company I’m looking at and I readthe annual reports of the competitors. That’s the main sourcematerial.WARREN BUFFETT, 1993We like to keep things simple, so the chairman can sit aroundand read annual reports.

he purposely limits his selections to companiesthat are within his area of financial and intellectual understanding. years. “When investing,” he says, “we viewourselves as business analysts—not as market analysts, not as macroeconomicanalysts, and not even as security analysts.” Investing is most intelligent when it is businesslike.I am better investor because I am a businessman,”Buffett says.” and a better businessman because I am a invester. if you have lowest price, costumers will find you at the bottom of the river. Graham had taught Buffett the two fold significance of emotion in investing of emotion- the mistake it tiggers for those who base irrational decision on it, and the opportunities it thus creats for those who can avoid falling into the same trap.
Buffett combination of two.

Business Tenets
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?Management Tenets
4. Is management rational?
5. Is management candid with its shareholders?
6. Does management resist the institutional imperative?Financial Tenets
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 marketvalue for every dollar retained?Value Tenets
11. What is the value of the company?
12. Can it be purchased at a significant discount to its value?

The differences between Graham and Fisher are apparent. Graham, the quantitative analyst, emphasized only those factors that could be measured: fixed assets, current earnings, and dividends. His investigative research was limited to corporate filings and annual report. He spend no time interviewing customers, competitors, or managers.Fisher’s approach was the antithesis of Graham. Fisher, the quallitative analyst, emphasized those factors prospects and management capability. Whereas Graham was interested in purchasing only cheap stocks, Fisher was interested in purchasinh companies that had the potential to increase their intrinsic values over the long term. He would go to great lengths, including conducting extensive interviews, to uncover bits of information that might improve his selection.

I buy businesses, not stocks, business I would be willing to own forever- Buffett

Buffett is often asked what types of companies he will purchase in the future. First , he says, I will avoid commondity business and managers that I have little confidence in. He has three touchstones: It must be the type of company that he understood, possessing good economics, and run by trustworthy managers. That’s also what he looks for in stocks- and for the same reasons.

All we want to be in business that we understand, run by people whom we like, and priced attractively relative to their furute prospects.

Think of buying stocks as buying fractional intrests in whole business.Construcy a focused low-turnover portfolio.Invest in only what you can understand and analyze.Demand a margin of safety between the purchase price and the company’s long-term value.Buffett had learned Ben Graham’s lesson well: When stocks of a strong company are selling below their intrinsic value, act decisively.

Appearing on the PSB shoe Money World in 1993, Buffett was asked what investment advice he would give a money manager just starting out. I’d tell him to exactly what I did 40-years ago., which is to learn about every company in the United States that has publicly traded securities.Moderator Adam Smith protested,” But there’s 27000 public companies.”Well said Buffett,” start with the A’s”.Capital IdeasPeter Bernstein The Theory of Investment Value.John Burr Williams The basic ideas of investing are to look at stocks as business, use market fluctuations to your advantage, and seek a margin of safety. That what Ben Graham taught us. A hundred years from now they will still be the cornerstones of investing. Security AnalysisGraham and Dodd You have to be yourself. Use Berkshire Hathaway annual report as part of the training material. Graham’s book The intelligent investor

Written by Bhushan Kulkarni

May 14, 2007 at 8:10 am

Posted in Waren Buffett

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