Image Source: INC.Com
How did Warren Buffett become too wealthy? Here are 3 main principles that Buffett uses to find undervalued quality stocks.
Buffett’s core investment philosophy is “Value Investing” that means buying a quality stock at a price lower than its intrinsic or real value. In other words buy at discount.
In the 1978 Berkshire Hathaway Letter to Shareholders Buffett said, We want the business to be:
1) A business that we Understand
2) With favorable LONG TERM PROSPECTS
3) Operated by COMPETENT people
4) Available at an ATTRACTIVE PRICE
Use any stock screener and filter stocks with these criteria:
* Market Cap = GREATER than $100M
* Price to Earnings (PE) = LESS than 15
* Return on Equity = GREATER than 10%
* Debt to Equity = LESS than 1 (100%)
Ensure Company has a solid performance track record. Check Financial statements last 10 years and find out every fundamental data that matters.
Observe these points:
* EPS Grow?
* BOOK VALUE Grow?
* DIVIDENDS Grow
* High RETURN ON EQUITY
* DEBT Shrink?
Understand the company’s business and its revenue model. What product companies sell, how they sell, who to sell - Ask every question about business.
1) How Company MAKE MONEY?
2) What PRODUCT they offer?
3) Key COSTS?
4) Who are the CUSTOMERS?
5) Main COMPETITORS?