Along with “Margin of Safety” principle, Buffett looks for low stock price in relation to tangible book value, shares selling at a discount to net current assets, low price-to-earnings ratio, low corporate leverage, purchases of a company’s own stock by the company’s officers and directors, a stock price which has declined significantly from its previous high price, company share repurchases, small market capitalization, a high average return on equity, and/or good management.
Buffett makes a similar comparison for airplane makers, airlines, and other industries (such as TV and Radio) which greatly impacted the economy, but generally didn’t profit investors. The important lesson Buffett draws from this: “The key to successful investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.”
- Make meaningful investments. (The future is unknowable and you need to hedge against this)
- Remember that investing is based on careful and thorough analysis. If you skip this step, you are speculating
Warren Buffett: (on a great truth about investment ideas) “Good investment ideas are rare, valuable and subject to competitive appropriation just as good product or business acquisitions are. The more you read, the more exposure you will have to other people’s ideas. It is helpful though, to be reading the right people’s ideas