I started to read the Money Masters By Jhon Train from 1980. In the book there is an interveiw with Warren buffet wich i want to focus on. He reveals how he values busisnesses and some ratios which in my understanding he hasnt revealed in other book.
The Buffet Ratio.
The Buffet Ratio is a financial metric that involves comparing a company's Property, Plant, and Equipment (PPE) to its EBIT or operating income. This ratio is used to assess a company's strength and the loyalty of its customers. For instance, if a company has $100 million in PPE and can generate $150 million in operating income, it indicates a favorable ratio. In theory, it suggests that with $100 million invested in machinery and property, the company can generate $150 million in annual income. However, it's important to note that this calculation does not consider the intangible value of assets like the brand. Companies like AAPL tend to have a high Buffet Ratio, while steel manufacturers typically have a lower one.
Buffet Principles on Companies
They have a good return on capital
They are understandable.
Understand what motivates employees and why customers are attracted to companies.
They see their profits in cash.
They have strong franchises and thus freedom to price.
They don 't take a genius to run
Their earnings are predictable.
They are not natural targets of regulation.
They have low inventories and high turnover of assets.
Little capital investment
The management is owner-oriented.
He likes managements who regard stockholders as partners, not adversaries and are not selling shares in bubbling markets
There is a high rate of return on the total of inventories plus plant
The best business is a royalty on the growth of others, re- quiring little capital itself
Buffet Principles on the Investor
You must be animated by controlled greed, and fascinated by the investment process. “If you are too interested in money, you will kill yourself; if not interested enough, you won't go to the office”
You must have patience.You should never buy a stock unless you would be happy with it if the stock exchange closed down for the next ten years.
You must think independently.
You must have the security and self-confidence that comes from knowledge, without being rash or headstrong.
Accept it when you don 't know something.
Be flexible as to the types of businesses you buy, but never pay more than the business is worth.
Have ten or fifteen years of intensive theoretical and practical training—including a number of years under the greatest investors before you start in yourself.
They have low inventories and high turnover of assets.
