This is a bit of a “one off” post for this website, but I’ve been investing a lot lately, and I created the following “Warren Buffett Way” cheatsheet to help me when deciding to invest in a company, or not.
As that title implies, this cheatsheet is based on the wonderful book, The Warren Buffett Way, by Robert S. Hagstrom, Jr.
Without any further ado, here is my “Warren Buffet Way” cheatsheet (reference page):
|Name||<stock name here>|
|Symbol||<stock symbol here>|
|Date||<date of your analysis>|
|Check||Questions||pgs.||Description, formula, or checklist||Notes|
|Is the business simple and understandable?||77, 105||Invest within your circle of competence|
|Does the business have a consistent operating history?||78, 105||The best returns are produced by companies that have been providing the same product or service for years.
Severe change and exceptional returns don't mix.
|Does the business have favorable long-term prospects?||79, 105||Franchies (good) vs. commodities (bad).
"Franchise": Has a product that is (1) needed or desired, (2) has no close substitute, and (3) is not regulated.
|Is management rational?||80, 109|
|Is management candid with shareholders?||83|
|Does management resist the institutional imperative?||84|
|Focus on ROE, not earnings/share||87, 107|
|Calculate "owner earnings" to get a true reflection of the value||89, 106||[Net Income] + [Depreciation] + [Depletion] + [Amortization] - [Capital Expenditures] - [Working Capital That Might Be Needed]|
|Look for companies with high profit margins.||91, 108|
|For every dollar retained, make sure the company has created at least one dollar of market value (the "One dollar premise").||92, 112|
|What is the value of the business?||93|
|Can the business be purchased at a significant discount to its value?||96, 107||Book value, market cap|
|Quotes from “The Warren Buffet Way”|
|One does not have to be correct very many times ... 12 investment decisions have made all the difference.|
|The critical investment factor is determining the intrinsic value of a business and paying a fair or bargain price.|
|He is willing to take risks where the odds of total loss are low and upside rewards are substantial.|
|If he is unable to project with confidence what the future cash flows of a business will be, he will not attempt to value the company.|
|There is no fundamental difference between buying a business outright and buying shares in a business.|
In a related note, if you are interested in quotes related to Warren Buffett, I just created this page of Warren Buffett quotes.