During the annual general meeting of 1996, Warren Buffett and Charlie Munger commented that: "If you find three wonderful areas in your life, you get very rich." During the meeting a year later, he said: "The most common mistakes I've made has been my reluctance to pay the outstanding companies," As a new investor, you can here and ask this:. "Yes, Joshua, but what really makes a company a good deal?"
To help you understand the characteristics of aExcellent work, I have some resources together that gives you an idea of what you should look for in a field, and, equally important, because it is important that you set. Armed with this information over time, is more of a portfolio of wealth creation can offer resources to build financial security for you and your family.
An excellent work achieved high returns on capital with little or no debt
There seems little doubt, based on the facts thatIt 's easier to use a large building equity value investing - that is, governed the acquisition of shares, bonds, mutual funds and other goods to sell at a significant discount to appear a person of reasonable estimate of intrinsic value (or "real" value). Think of it as if you knew a car wash place had the gold buried beneath it. The owner can ask $ 800,000 for the land and businesses, but you know that pay much more, notOnly the owner of the company, but also the sale of gold dug in the open market. So you had reason to believe that he has sold for much less than the intrinsic value.
The only major flaw of this approach is that an asset is sold is bought cheap, must, if it reaches the intrinsic value if it is a good deal. As Charlie Munger has pointed out, for long periods of time, is the return an investor earns, probably very close to the overall efficiency of capitalproduced by a company, dilution in shares outstanding. So you are probably better paid fair value for a company that can reinvest capital at high returns - for example, more than 15% to 20% a year - than buying a trading desk in a small poor discount to its liquidation value.
For more information, read business as Investing: Think like an owner, on the second page of this article you will find information about why to find back issues of capital invested.
ABusiness has excellent long-term competitive advantages
If you had unlimited funds, you really think the best to choose a manager in the world, Coca-Cola may be the undisputed market leader in the soft drinks market to plunge? How about Johnson & Johnson with its myriad of patents, trademarks and brands? The reason these companies are able to succeed so well is that they have sustained competitive advantages - not the things that their competitorsreproduce.
Sometimes, these benefits are easy to recognize - as in the case of Coca-Cola, which is the second most popular word on Earth. However, you can keep them buried. One of the secrets of the phenomenal success of Wal-Mart, Sam Walton is that a system of distribution logistics expertise that enable it to carry the costs of moving goods to the shops built lower, with which much more profit than its competitors to sell at higher prices. Hehas won its shareholders from the higher income, while consumers have gained from lower prices. These forces were working in conjunction with increasing speed, and the results so that the small five percent and has seen the largest retailer in the world has ever grown.
If you buy a company through the purchase of common stock, try to have durable competitive advantages that are resistant to attack by competitors and to identify how market forces mightOutsourcing and increased globalization.
Excellent work is scalable
When companies are highly successful, one of the main ingredients of the time does not scale. Take American Eagle Outfitters, which has one of the best long-term investment records in the last ten years. Why was it successful? Objective? Wal-Mart? McDonalds? Coca-Cola? Pepsi? Microsoft? All are excellent companies, in part because they had the products or services that could be replicated in a cookie-cutterVery, very quickly.
Think about it. The McDonalds in Hong Kong is very similar to McDonald's in Chicago. And New York. And Southern California. With the menu layout, fixtures, and technology so that restaurants could be opened quickly packed, making it easier for the chain to launch in the U.S. and the world. Together with its relatively high returns on capital and the money made available by the franchisee, the fleet-footed the bill to build a very large partbusiness in general, it is not difficult to see why shareholders might be regarded as a hero, Ray Kroc.
The price has more ...
For those of you too young to remember the Nifty Fifty, had this idea to buy excellent companies such ridiculous extremes met in 1960 that investors paid more than sixty and seventy KGV! To counteract this is a normal price-earnings ratio of fifteen to Wall Street, which is generated for every $ 1 of earnings per share of a company,It would be $ 15 a trade. It had to be a genius to see that even though the company had had to be cracked, at these prices, it would be virtually impossible to obtain a satisfactory long-term performance.
That's why you need to take a moment to check prize is an example of Paramount, to see how lower growth rates actually lead to higher returns in certain circumstances.
Buy and hold investment strategy
Although I actively manage myregular investment accounts, and as you know, there are several shops that I am involved, is the strategy for one of my personal IRA accounts just a business, every year, is that the long-term competitive advantages, has earned a return on equity offers talent management has a history of capital allocation, including returning excess capital to the owners in the form of cash dividends and share repurchases and the potential for future growth, where I can bepretty sure that the result is probably much higher in five or ten years. Then I found the total annual contribution is limited to buy the shares possible to say, my brokerage firm to reinvest all dividends and almost forgot to participation. At least once a year, I will review the progress of society and of the results to ensure there are no significant changes for the quality of the underlying companies. In most cases, regardless of market conditions, Ithese actions are simply forgotten.
Why, you ask, I would be inclined to do so, if my results are so good regular investment? It 'pretty simple: insurance against ignorance and arrogance, as Benjamin Graham called it. There is no way I can know everything covered, and how impressive the work of Professor Jeremy Siegel, large companies have crushed with dividends reinvested over the decades as the broader market. A well-known financial news and comments on companiespoints out, is a description of the product on-line only $ 2,000 in PepsiCo has invested 25 years ago has grown to $ 150,000 from a single share of Coca-Cola purchased for $ 19 in 1919 with dividends reinvested would now be worth more than $ 5000000 +. Through market high, low and in the middle to keep these big companies just composed. To own a collection of them in a retirement account, outside the sphere of my entrepreneurial efforts, and the portfolio of investments active enterprises, is aa reminder for my business quiet conservative management (such as an insurance policy that protects against a 1 in 1,000 years before) and make the companies themselves, lifting heavy loads. It 'also my hope that one day the bill as a living, breathing educational exercise, highlighting the benefits of capitalization, my children, grandchildren and even be - dare I say - very grandchildren.
In a sense it is similar to what Anne Scheiber did when they amassed a fortune of $ 22 + millionTheir tiny apartment in New York. Selecting low-cost, blue chip stocks, the friction costs of active management, frequent large / ask spreads, commissions and taxes are reduced, leading to more capital to the investor capitalization. As Charlie Munger pointed out by participating shares for a longer period and pay only a single VAT of 35% to the end (these prices were before the Bush cuts on capital gains), would be a return of 15% on top 13% for the moment everything is done -Compared to much much less - 10% and 11% depending on the circumstances - if the money were made by the frequent trading. During a period of 50 years, a small 3% lead in the triple advantage wealth. You read that right. As an investor said large, this is a game of inches, not feet and yards. They make the best decisions and, over time, a sum that something significant.
How can you decide which parts of s should go to make the cut? Believe it or not,should not go with the cheapest or most undervalued companies. This is because for long periods of time, a material that is earned on the rate of business processes in the link below stock. That is, assuming that you have to pay a reasonable price (remember - Price Paramount), and Wall Street maintains a consistent estimates, as the price-earnings ratio is measured, is a 13% gain on capital is likely connection speed itself, with dividends reinvested,provided that there is a tax-favored accounts are drawn. With a period of 10 years or longer time, you'd be better off, the ownership of this business as a well-earned equity 8%, but trading at a 30% discount to the intrinsic value.
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