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Why Warren Buffett invested in Goldman Sachs
September 26, 2008
The guru's words of wisdom
Warren Buffett's letters to shareholders are a treasure trove of information and packed with good strategies and loads of wise words. The letters give an insight into his thoughts, hopes and aspirations.
According to him, there are many rules to win the game. The first rule is not to lose. The second rule is not to forget the first rule.
Mistakes? An investor needs to do very few things right as long as he or she avoids big mistakes.
Want high value? Focus on return on equity, not earnings per share. Calculate "owner earnings" to get a true reflection of value.
How to choose the right companies to invest? In the 2007 letter, he says Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag.
What makes a great biz? Look for companies with high profit margins. A truly great business must have an enduring 'moat' that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business 'castle' that is earning high returns.
Image: A Wall Street sign is seen in front of the New York Stock Exchange in New York City. Mario Tama/Getty Images
Also read: Ratan Tata's words of inspiration
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