Warren Buffett’s Investment Philosophy is not that complicated. Buffett goes for the lowest price because it may seem not profitable to some who do not have the same philosophical leanings. Shares of stock incorporate the same prices, so some investors do not participate in the efficient market hypothesis. Buffett believes in looking at the ROE (Return on Equity), because the last year isn’t enough, and rather should be read 5 to 10 years to analyze the history of a particular share. Buffett considers the debt/equity ratio as a key characteristic of total liabilities/shareholder’s equity is how the debt/equity ratio is calculated. Some investors use only long-term debt in their calculations.
Buffett believes in looking at the profit margins of a company to see if they are high enough or not. Investors need to look back five years, once again. Buffett also believes in looking at how long the company has been public, only investing in businesses he understands. Since he doesn’t understand today’s many technology companies, he only invests in a business he can grasp fully. Undervalued companies can be invested in but only because they have withstood the test of time. The value of historical performance need not be underestimated. Can the company perform as well as it did in the past?
Buffett is good at figuring this one out. Buffett asks if the company relies on commodity or the bulk of its competitive advantage. In addition, Buffett’s philosophy involves asking if the stock selling at 25% to discount its real value. Investors like Buffett have to determine which companies are undervalued. Will they succeed or not? He asks himself. Buffett’s investment style is like going shopping for bargains, reflecting a practical attitude. Buffett doesn’t have a huge house, collect cars, or take a limousine to work. Buffett is one of the richest people with a valuable net worth of $84.2 billion.