Do I understand this business?
says he only understands "simple" business such as candies, newspapers, soft drinks, shoes, and bricks. Clearly defines his "circle of competence" and never strays beyond it.
he wants to be able to see" what can happen 5-10-15 years form now to affect or change the economics of the business. If we can't see that we don't even look at it.
Does it have favorable economics?
Avoids regulated industries as the government, not the company sets prices and /or return on the equity.
Avoids capital-intensive industries; invests in companies that can finance their capital requirements from cash flow, profits or very modest borrowings. By the same token, avoids companies with heavy debt loads.
seeks businesses that have what he calls a "franchise," "moat" or "tollgate."
Examples: companies with the lowest cost in their industry [Nebraska Furniture Mart], a powerful brand name [Coke], premium-priced, high-quality products [see's Candies]. market dominance[The Washington Post].
Are those favorable economics sustainable?
Consistent history of a management that works to continually widen its "moat."
Businesses where demand will continue to grow [e.g., razor blades and Gillette].
Checks for any developments likely to upset a business's franchise [e.g., he liked TV networks a lot better "when there were only three networks"].
Does management allocate capital rationally?
whats managers who think and act like owners, and who avoid the "institutional imperative" [ego-booting take overs, etc.].
when the management cannot reinvest $1 to create at least $1 of value, they should return capital to the owners by increasing dividends or share buybacks.
Do i want to own this business with it s existing managements?
He will only invest in a company "operated by honest and competent people, managers for whom he can feel admiration and trust.
Wants managers who have integrity, "operated by honest and competent people, managers for whom he can feel admiration and trust.
Wants managers who have integrity , are honest and candid, who tell shareholders the bad news and don't try to hide or gloss over it. "we want managers who tell the truth and tell themselves the truth- which is more important."
likes cost-conscious and frugal managers.
Does it have an above-average return on equity?
the higher its return on equity, the more profitably the company can reinvest its earnings. The higher its return on equity, the faster its value increases from one years to the next.
Do I like the prices?
he will only invest when he sees a "margin of safety"; when he can invest at a discount to his estimate of the company's value. If a company meets all his other criteria but the price is too high, he'll pass.
says he only understands "simple" business such as candies, newspapers, soft drinks, shoes, and bricks. Clearly defines his "circle of competence" and never strays beyond it.
he wants to be able to see" what can happen 5-10-15 years form now to affect or change the economics of the business. If we can't see that we don't even look at it.
Does it have favorable economics?
Avoids regulated industries as the government, not the company sets prices and /or return on the equity.
Avoids capital-intensive industries; invests in companies that can finance their capital requirements from cash flow, profits or very modest borrowings. By the same token, avoids companies with heavy debt loads.
seeks businesses that have what he calls a "franchise," "moat" or "tollgate."
Examples: companies with the lowest cost in their industry [Nebraska Furniture Mart], a powerful brand name [Coke], premium-priced, high-quality products [see's Candies]. market dominance[The Washington Post].
Are those favorable economics sustainable?
Consistent history of a management that works to continually widen its "moat."
Businesses where demand will continue to grow [e.g., razor blades and Gillette].
Checks for any developments likely to upset a business's franchise [e.g., he liked TV networks a lot better "when there were only three networks"].
Does management allocate capital rationally?
whats managers who think and act like owners, and who avoid the "institutional imperative" [ego-booting take overs, etc.].
when the management cannot reinvest $1 to create at least $1 of value, they should return capital to the owners by increasing dividends or share buybacks.
Do i want to own this business with it s existing managements?
He will only invest in a company "operated by honest and competent people, managers for whom he can feel admiration and trust.
Wants managers who have integrity, "operated by honest and competent people, managers for whom he can feel admiration and trust.
Wants managers who have integrity , are honest and candid, who tell shareholders the bad news and don't try to hide or gloss over it. "we want managers who tell the truth and tell themselves the truth- which is more important."
likes cost-conscious and frugal managers.
Does it have an above-average return on equity?
the higher its return on equity, the more profitably the company can reinvest its earnings. The higher its return on equity, the faster its value increases from one years to the next.
Do I like the prices?
he will only invest when he sees a "margin of safety"; when he can invest at a discount to his estimate of the company's value. If a company meets all his other criteria but the price is too high, he'll pass.