The best approach to choosing common stocks
“If you can look into the seeds of time,
And say which grain will grow and which will not,
Speak then to me.”
Part 6: The Hallmarks of Superb Businesses
Concentrate on smaller-picture things
The small picture is its specialist technical, engineering, construction and operational skill and economic performance
Investors can counter management short termism
63 per cent of respondents said the pressure to demonstrate short-term financial performance had increased over the last five years
How to identify companies that make lots of money for shareholders
Economic performance focuses on effective use of the capital invested in the company
Financial strength – the debt equity ratio has serious shortcomings
No company under consideration will even be close to scrambling to pay its creditors.
How to identify great companies to invest in – Part lll
There needs to be a skilled knight in the castle to protect and enhance the moat.
How to identify great companies to invest in – Part ll
Some companies are in the seemingly fortunate position that they can maintain profit margins simply by raising prices.
How to identify great companies to invest in – Part l
Buffett uses Owner Earnings to judge the performance of a company and its management. He also uses Owner Earnings to assess the intrinsic value of a company.
The hunt for wonderful businesses
Free cash flow yield can be a better indicator when return on capital (ROC) becomes a vanity metric that unduly flatters economic performance and management. We can charge management with the full cost of Economic Goodwill.
Be wary of using Return on Capital (ROC)
Superb companies produce a very high return on capital. But when substantial intangible assets don’t show up on balance sheets, the ROC numbers are unduly flattering to management.