Warren Buffett says that a good company is like a “castle” – how it spots the best to invest – NBC10 Philadelphia
Warren Buffett announced his imminent retirement Saturday, in the middle of a career of about 75 years as one of the most worldwide Successful investors – accumulate a net value Currently estimated At 169 billion dollars, according to Bloomberg.
How does he do it? Buffett, CEO and president of the 94 -year -old portfolio company, Berkshire Hathaway, likes to think about his potential investments His longtime friend And the co-founder of Microsoft, Bill Gates.
“Warren likes to say that a good business is like a castle and that you have to think every day: does management increase the size of the ditch? Or does the gap are shrinking?” Doors Written for the Harvard Business Review in 1996.
In this scenario, the castle gap is equivalent to the basic basic principles of a company – its “intrinsic value”, As Buffett has already said. To determine the intrinsic value, Buffett looks beyond assesses the factors Like the consistency of his profits, the state of his cash flows and the amount of the debt he carries.
Buffett “likes to read all of its annual reports that come back as far as possible,” wrote Gates. “He examines how the company has progressed and what is its strategy”, and aims to determine whether the company can resist “rigors of competition”.
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A company with little or no debt and regularly Positive cash flowFor example, is generally music with buffett ears. “If you try to assess the intrinsic value, everything relates to cash flows,” He said In the annual meeting of Berkshire Hathaway in 1997. “The only reason to put money in any type of investment now is that you plan to take money.”
Once he is satisfied with his research, Buffett “acts deliberately – and rarely”, wrote Gates.
The buffett style of “Value investment” implies thinking from afar and keeping the active ingredients for long periods, whatever the short -term market oscillations. He prefers trade models which, according to him, are fundamentally solid, noted Gates, referring to a Buffet aphorism: “You should invest in a business that even a fool can manage, because one day an idiot.”
To determine if a company is infallible is difficult. Buffett said that it was attracted to companies that have cornered their particular market, or “have a monopoly” on their specific business, like a newspaper in a city without audiences of competitors, He said The financial crisis commission in 2010.
He also keeps an eye on fundamentally healthy companies which, according to him, are managed in a lower way – considering them as opportunities to support the company and install a stronger leadership, in the hope of helping him reach his full potential.
“We are trying to understand: why is this castle still standing? And what will keep him upright or do not stand five, 10 years in 20 years?” Buffett declared at an annual meeting of the shareholders of Berkshire Hathaway in 1995. “What are the key factors? And how permanent are they? How much do they depend on the genius of the Lord in the castle?”
During the decades that followed, Buffett has always married the same philosophy. In his last annual letter to the shareholders of Berkshire Hathaway, published on February 22, He wrote on his 2019 decision Investing in five large Japanese companies, he thought he was undervalued – and his later decision to increase his participation in these companies.
“We simply examined their financial files and were amazed at the low prices of their actions”, ” wrote Buffett. “Over the years, our admiration for these companies has constantly grown up.”
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