Tuesday, September 9, 2008

Warren Buffett's Investing Checklist

WASHINGTON - MARCH 13:  Warren Buffett, chairm...Image by Getty Images via Daylife

Warren Buffett's Investing Questions

Before Warren Buffett invests a dime, he asks:

  • Is the company in an industry with good economics? That is, is it not in an industry competing on price?

  • Does the company have a consumer monopoly or brand name that commands loyalty?

  • Can anyone with an abundance of resources compete successfully with the company?

  • Are the earnings on an upward trend with good and consistent profit margins?

  • Is the debt-to-equity ratio low, or is the earnings-to-debt ratio high? Can the company repay debt even in years when earnings are lower than average?

  • Does the company have high and consistent returns on invested capital?

  • Does the company retain earnings for growth?

  • Does the business have high maintenance cost of operations, high capital expenditure or investment cash outflow? (If so, that's not good.)

  • Does the company reinvest earnings in good business opportunities? Does management have a good track record of profiting from these investments?

  • Is the company free to adjust prices for inflation?

In short, he makes companies jump through a lot of hoops before he considers putting them in his portfolio.

Source : InvestmentU

1 comment:

xuzhu said...

Hi there.

Interesting checklist from Warren Buffett. This is from his annual reports. Great job on compiling this.

I also am using checklist after reading this good article on its benefits:


Let me know what you think of the article.