Dec 12 2006

Find a Wonderful Business (Buffett)

Published by Mike at 3:47 pm under Investing

A wonderful business will be one that has four characteristics:

  1. Meaning — you understand and value what it does
  2. Moat — it has financial strength and predictability
  3. Management — a great management team is there
  4. Margin of Safety — it is available at a great price

In essence, what you try to do is identify a business you’d like to own completely because you relate to it rather than just looking for a stock that will make you money.

The markets are full of opportunities to buy stock in all kinds of companies. To make Rule #1 work for you, however, you need to narrow the field a little. You need to run the entire menu of choices through the selection filter of four key questions before you decide whether or not to buy. In selecting some wonderful companies to invest in, keep in mind the 10-10 Rule: “Don’t invest in any business for ten minutes unless you would be more than happy to keep your investment for ten years or longer.”

The four filtering questions are:

  1. Does this business have meaning to me?
  2. Does this business have a wide moat?
  3. Does this business have good management?
  4. Does this business have a margin of safety?

Rule #1

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