Investing Like an Oracle

By Tom Gentile, Profit Strategies.com

Of all the longer-term investors out there, Warren Buffett is probably the most notable. It’s hard not to like this guy. Other than being an astute investor, he is also a notable contributor to various charities. Let's dive into the Oracle of Omaha's investing style and how to trade options using Warren Buffett stocks.

So, why you are reading this article? What you really want to know about Warren Buffett is his criteria for picking value stocks. Okay, here is a breakdown on what we have discovered in the search for Warren Buffett picks:
Warren Buffett is a value investor. That means he doesn’t participate in wildly running growth stocks—in fact, he was ridiculed for staying out of the tech boom in the late '90s. Of course, we all know how right he was just after the year 2000, when everything DotCom collapsed. Warren Buffett has a unique style when it comes to investing, so without writing a novel on the subject, let me get to the point of what he looks for.

Brand Recognition – One of his key criteria… Is the company well known? Does it have a stronghold in its core products with consumers? The company has to be a recognized brand in its industry for Warren Buffett to consider it as part of his holdings.

Earnings Consistency – Warren looks for a growing company with no negative years of earnings growth in past 5 years. If the company has had at least one year of negative earnings growth in the last 5 years, then it will not be considered. By the way, Long-term Earnings Per Share [EPS] growth indicates that the company is growing over time. The EPS of a company must be continually growing.

Long-term debt – This is the company's current long-term or multi-year debt structure. This could include mortgages, long-term bank notes, etc. In order to pass the Warren Buffett test, long-term debt must not be greater than 2 times net income. This is a liquidity measure which ensures that the company has not taken on too much risk through its borrowings.

Return On Equity – Return on Equity [ROE] measures the return on shareholders funds or shareholders equity. ROE is calculated by dividing the net profit by shareholder equity and multiplying it by 100 to express the result as a percentage. The higher the ROE, the better. Buffett requires a return on equity of 15% or more.

Capital Expenditure – Free cash flow per share is the amount of money that is free to be spent. It is cash flow minus all expenses. Buffett likes free cash flow per share to be positive.

Utilization of Returned Earnings – This is all about seeing if management is using retained earnings to increase shareholder value. In order to be increasing shareholder value, according to Buffett’s methodology, retained earnings should provide a return that is 15% or better, but he will accept if a company has a return that is better than 12%.

Comments

Post a Comment

Popular posts from this blog

US Quake Test Goes “Horribly Wrong”, Leaves 500,000 Dead In Haiti

By: Sorcha Faal, and as reported to her Western Subscribers A grim report prepared by the Russian Northern Fleet for Prime Minister Putin is stating today that the catastrophic earthquake that has devastated the Island of Haiti was the ‘clear result’ of a United States Navy test of one of its ‘earthquake weapons’ planned to be used by the Americans upon the Persian Nation of Iran but had gone ‘horribly wrong’. The Northern Fleet has been monitoring US Naval movements and activities in the Caribbean since 2008 when the Americans announced their intention to re-establish their Forth Fleet that had been disbanded in 1950, and which was responded to by the Motherland when later that year a Russian flotilla led by nuclear powered cruiser Peter the Great began their first exercises in this region since the ending of the Cold War. Though virtually unknown to the American people, the use, and perfection, of earthquake weapon technology has a decade’s long history that began with the former Sov
Read more

I'm an accountant, I hate my job, but seriously, I wouldn’t know what else to do

I was born to be a lot of things, but being an accountant isn't one of them. In my heart of hearts I have always known this, but for some stupid subconscious reason, I have always ignored it. Why? Well...um...err...I didn’t know what else to do. How many people faced with the same predicament of deciding on a profession upon graduating used “not really knowing what to do” as their guiding compass? Blink. Ten years have passed and you’re left wondering, how did I get here? In this cubicle? Doing something I cannot stand (and I’m not even honestly good at), with people I quite frankly don’t really care about? For me that was accounting, a profession that conjures numerous clichés, such as boring, bean counting, personality not needed, number crunching etc etc. These have now evolved and have been replaced by repetition, reconciliations, long hours, fudging figures, high turnover, Enron and even more reconciliations. R-E-S-P-E-C-T But please don’t get me wrong, I have the utmost respe
Read more

5 ways to make extra money and boost your income

By Alexis Jeffries and Donna Rosato, Money Magazine Wish you had a little more money in your wallet these days? Who doesn't? While the Great Recession is over by most accounts, the Great Income Squeeze lingers on. You're more likely to have had a pay freeze than a pay raise over the past year; and the average bump up for 2010 is expected to be pretty paltry. Meanwhile, your portfolio may still be off its pre-crisis highs, even after the market's rally, and the bank won't pay you spit to hold your cash. But you don't have to accept the status quo when it comes to bringing in the dough. Whether you're still on the job or retired from the grind, the action plans that follow can help boost your income. The strategies require human or financial capital (and sometimes both). But those that involve work don't demand extra training, and should leave you leisure time to spare. Bonus: These moneymakers may satisfy your entrepreneurial spirit, get your creative juices
Read more