Warren Buffett, one of the world’s most successful investors, follows a straightforward yet challenging approach to selecting stocks. His criteria focus on fully understanding a company, predicting its future earnings, and assessing the quality of its management.
At the 1998 Berkshire Hathaway Annual Meeting, Buffett explained that selecting a stock is essentially about analyzing a business. First, he looks for companies with clear and understandable business models. He wants to understand their products, the competition, and potential risks. Next, he evaluates whether the company’s earnings are likely to improve over the next five to fifteen years. Finally, he assesses the management and determines if the stock is reasonably priced based on his findings.
As Buffett famously notes, “It is simple, but not easy.”
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© 2024 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.