Warren Buffett And The Expansion Theory Of Expanding Intrinsic Value

1300 WordsNov 12, 20156 Pages
Warren Buffett is a renowned investor, philanthropist and entrepreneur. He is one of the only investors on the Forbes richest list who has made his money solely by investing in stocks and corporations. His has a net worth just shy of 67 billion and an extensive portfolio includes companies such as Coca-Cola in Geico, which he accumulated through careful observation and his success is based off of seven key ideas that he lives by. Buffet believes that a successful investor needs to have discipline when walking into the stock market and invest in the different types of businesses that he feels has excellent business economics and can expand. He invest in companies that has intrinsic value, the projected return annually. Since the market has…show more content…
Whether the stock market fully values the stock or not, the price will subsequently rise the intrinsic value of the company. In order to prevent capital loss when investing in companies, he tried to follow the Grahamian investment strategy; Graham had a major influence throughout Buffet 's investing life and he take his advice about investing from a business perspective and emphasizing price as major motivating factor when selecting companies he wants to invest. He tried the Grahamian investment strategy but realized that investing in mediocre businesses would never have an increased intrinsic value and that he would have to buy an excellent business that would have an expanding value instead of the static value he must buy a business that has the highest net gain with the least tax impact. Achieving excellent business economics is only evident by consistently high returns on shareholders equity, but how to determine if a business is truly excellent takes time and conscious effort. There are nine questions one must ask oneself to see if the business should be an interest. Number one, does the company have an identifiable consumer monopoly? Brand-name products like Coca-Cola are going to do better than products like knockoff brands. Two, does the company show a strong upward sales trend? Companies may have an excellent name but they need to have a good management team who can increase the annual earnings per-share. Three, is the company conservatively financed?
Open Document