Warren Buffet’s guide to finding stocks whose “value” is significantly greater than their price:
- Pay no attention to macroeconomic trends or forecasts, or to people’s prediction about the future course of stock prices. Focus on the long term business value — on the size of the returns down the road.
- Stick to stocks within your “circle of competence.” If you don’t understand the business, you can’t value the stock.
- Look for managers that treat the shareholder’s capital with owner like care and thoughtfulness.
- Study prospects — and their competitors — in great detail. Look at raw data, not analysts’ summaries. Trust your own eyes. But one needn’t value a business to precisely. A basketball coach doesn’t check if a prospect is six foot one or six foot two; he looks for seven-footers.
- The wast majority of stocks are not compelling — so ignore them. When you have conviction about a stock, you should show courage — and buy a ton of it.