Warren Buffett’s way of investing in Stock Market

Warrant Buffett was only interested in buying stocks for the very long term to avoid wealth loss by paying tax to the Government. The stock market has less number of long-term buyers and a high number of short-term buyers. Short term players buy stocks based on daily news and it gives opportunities for the long-term investors to buy stocks below the intrinsic value. The followings are criteria to buy stock from Buffett’s point of view.

1. The company should be consumer monopoly.
2. It should have strong earning and the earnings should be in uptrend.
3. The company should be conservatively financed. That is the debt should be less. It should not go for a debt financed acquisition.
4. The company should provide higher rate of return on shareholders’ equity. Return on Equity (ROE) should be at-least 15%. Instead of dividend payment the company should accumulate the retained earnings and should spend it to increase the ROE.
5. Retained earnings should grow more than they pay out as dividends.
6. The company should not require any extra money to maintain its operation and it should not require more money to grow.
7. The company should be able to reinvest and should have history of using its capital to buy a profitable business.
8. The company should be able to adjust its price of goods to inflation without losing it market to the competitor
9. The retained earnings should increase the market value of the company. The management should be able to allocate the retained money to new venture and it should not use it for day-to-day operations

If you are a value investor then you should be considering the above points before buying your next stock.