Warren Buffett Value Investing Formula

Warren Buffett’s philosophy and formula for investment are based upon the principle of purchasing, at fair prices, quality businesses.

Warren Buffett is a fundamental investor and not a technical investor. As a fundamental investor Buffett looks at the long-term investment in stock or a business. Buffet in his fundamental analysis is interested in:

• The number of sales a business makes over a period, such as on a quarterly and annual basis
• Invest in companies with good earnings or with rising margins. The earnings per share are calculated. All aspects are considered such has an increase or decrease in expenses to account for a rising or falling margins.
• Calculate the P/E Ratio which is the ratio of the current stock price divided by the annual earning per share. This ration determines a company’s valuation.
• The company’s sector will determine financial success. The technology, financial and transportation sectors perform better in a rising economy.
• Pay attention to the overall economic cycle such as the beginning, middle and the end of a recession or a boom.

Buffett is not swayed by swings in the stock price which causes a fear of Wall Street. He does not speculate concerning the short time movements of the market. It is not uncommon for Buffett’s investment behavior to be opposite other investors in that he has bought stock, while other investors are selling. He concentrates on the value of his investment applying the fundamental analysis and plays upon the fears and greed of other investors while he is not opposed to admitting to greed.

Buffett is very demonstrable in his investments through his company Berkshire Hathaway, by purchasing shares in brand names such as Coca-Cola and Apple. He also invests in products that are simple to understand such as food, diapers, razors, and furniture.

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