Buffett principle
For Buffett, there is no fundamental difference between buying a company 100% shares and buying only a part of them. But Buffett prefers to own or control a business directly, because it enables him to influence the most important aspect of business operation and value formation: the allocation of capital. If he can't own a company directly, Buffett will buy common stock instead to hold part of the company's shares. Although there is no control right, this deficiency can be made up by the following two obvious advantages: (1) it can be selected within the whole stock market, that is, the selection range is wider; (2) The stock market can provide more opportunities to find investments with appropriate prices. Whether holding or not, Buffett always follows the same investment strategy: find a company he really knows, which needs long-term satisfactory development prospects and is managed by honest and capable managers. Finally, buy the company's stock at an attractive price.
Buffett believes that "when we invest in stocks, we should regard ourselves as enterprise analysts, not market analysts, securities analysts or macroeconomic analysts." When evaluating potential M&A opportunities or buying a company's stock, Buffett always looks at the problem from the perspective of entrepreneurs. Conduct a systematic and overall evaluation of the enterprise, check the management and financial status of the enterprise from both qualitative and quantitative aspects, and then evaluate the stock purchase price.
Business guide
Buffett thinks that stock is an abstract concept, and he does not think from the perspective of market theory, macroeconomic thinking or local trends. On the contrary, his investment behavior is related to how a company operates. Buffett always concentrates on knowing as much as possible about the deep-seated factors of the enterprise. These factors are mainly concentrated in the following three aspects:
1. Is the business of the enterprise easy to understand?
2. Is the business history consistent?
3. Does the enterprise have a long-term satisfactory prospect?
Management guide
Buffett's highest reward for a manager is to make himself a shareholder of the enterprise, that is, to make him regard the enterprise as his own. In this way, managers will not forget the primary goal of the company-to increase the value of shareholders' equity, and will make reasonable business decisions to try their best to achieve this primary goal. Buffett appreciates those managers who strictly perform their duties, report to shareholders comprehensively and truthfully, and dare to resist what Buffett calls "convention-driven" influence.
Buffett's investigation on the management of enterprises interested in acquisition or investment mainly includes the following aspects:
1. Are managers rational?
2. Is the manager honest with the shareholders?
3. Are managers "convention-driven"?
Financial standard
Buffett's criteria for evaluating the financial aspects of management and profitability are based on some typical Buffett creeds. For example, he doesn't pay much attention to the annual business performance, but pays more attention to the average figures for four or five years. He always said that the returns of profitable enterprises are not as unchangeable as the time when the planets revolve around the sun. He is quite disgusted with the practice of obtaining amazing year-end performance data through accounting tricks, although it has no practical value. He took the following criteria as the guiding principles of financial evaluation:
1. Focus on equity capital gains, not earnings per share.
2. Calculate "shareholder income".
3. Look for stocks with high operating profit rate.
4. For every $65,438+0 of retained earnings, it is confirmed that the company has generated at least $65,438+0 of market value.
Market guide
Theoretically, the difference between the company's stock price and its intrinsic value determines the behavior of investors. When the company develops continuously along its business life cycle, analysts will re-evaluate the relative relationship between the intrinsic value of the company's stock and its market price and decide whether to buy, sell or continue to hold the company's stock. In short, rational investment has two main points:
1. What is the real intrinsic value of this enterprise?
2. Can I buy the stock of this company at a big discount relative to its value?