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