Table of Contents
Cover
Title page
Copyright page
Dedication
Acknowledgments
PART I: WARREN BUFFETT INVESTMENT PRINCIPLES
CHAPTER 1 Replicating Warren Buffett’s Investment Success
CHAPTER 2 Business-Like Investing
CHAPTER 3 Long-Term Investing
Capital Gains Taxes
Broker Commission
CHAPTER 4 Permanent Loss of Capital
Scenario 1
Scenario 2
PART II: STOCK RESEARCH CHECKLIST
CHAPTER 5 Stock Research Checklist—Business Characteristics
Are You Able to Understand the Business Thoroughly? Is It a Simple Business?
Does the Company Have any Moat, which Makes It Difficult for Competitors to Penetrate Its Market Share?
What Is the Nature of the Business? Does It Operate in a Non-Exciting Industry?
Is the Company Involved in a Dirty Type of Business?
With National Chain Companies, Was the Company Successful in Multiple Locations before Expanding Nationally?
Has the Company Dominated in a Particular Segment of the Market?
Is This Company Operating in a Hot Industry?
CHAPTER 6 Stock Research Checklist—Earnings
What Is the Company’s Earnings Growth over the Previous 10 Years? Does It Grow Constantly?
How Does the Company Use the Retained Earnings? Do the Retained Earnings Reflect in the Stock Price?
What Are the Company’s Owner Earnings for the Past 10 years? Does It Grow Consistently?
What Is the Company’s Recent Earning Momentum? Is It Comparable to Its Long-Term Growth Rate?
Does the Company Have Any One-Time Event That Recently Increased Earnings?
What Is the Company’s “Operating Cash Flow”? Does It Grow at a Constant Rate?
How Has the Business Performed in Previous Recessions?
If a Particular Product’s Success Attracted You to a Company, What Percentage of That Company’s Sales Come from That Product?
Does the Company Have Client Concentration?
CHAPTER 7 Stock Research Checklist—Debt
Does the Company Have Manageable Debt?
Does the Company Have Manageable Short-Term Debt?
What Is the Company’s Current Ratio?
What Is the Company’s Long-Term Debt? Is It Manageable?
Does the Company Pay Little or No Interest Expense?
Does the Company Have Preferred Stock?
CHAPTER 8 Stock Research Checklist—Equity
What Is the Company’s ROE for the Last 10 Years? Does It Trend Upward?
Does the Company Have More Equity When Compared with Long-Term Debt?
CHAPTER 9 Stock Research Checklist—Profit Margin
What Is the Company’s Net Profit Margin for the Last 10 Years? Does the Company Generate a Consistent Upward-Trend Profit Margin or at Least Maintain an Average Profit Margin?
What Is the Company’s Gross Profit Margin for the Last 10 Years? Does it Consistently Grow, or at Least Maintain an Average Rate?
Does the Company Have a High Pretax Profit Margin?
CHAPTER 10 Stock Research Checklist—Capital Investment
What Is the Company’s ROA for the Last 10 Years? Is It Growing Constantly or at Least Maintaining an Average ROA for the Last 10 Years?
Does the Company Have Consistent ROIC Numbers?
Does the Company Need to Spend Large Amounts of Money as a Capital Expenditure to Stay Competitive?
What Is the Company’s Investing Strategy? Is the Company Investing in Its Area of Expertise?
What Percentage of Revenue Is Spent on Research and Development?
CHAPTER 11 Stock Research Checklist—Management
What Is the Company’s Growth Recently? What Plans Does Management Have to Grow the Business?
Does the Company Have Related-Party Transactions with the Family Members or Relatives of the Senior Management or Board of Directors?
Are You Able to Understand the Footnotes of the Company’s Financial Statements?
Is Management Candid in its Performance Reporting?
Is Senior Management Success Oriented?
Do the Financial Numbers on the Company’s Earnings Release Match the Numbers on the Documents That Are Submitted to the SEC (Especially Income Taxes Paid)?
Does Management Deliver What It Promises?
CHAPTER 12 Stock Research Checklist—Dividend
If You Are Buying the Stock for Dividend, Make Sure the Company Pays the Dividend Without Interruption and Has a History of Raising Dividends
What Is the Percentage of Earnings Paid as a Dividend? Is It a Small Percentage of the Revenue?
CHAPTER 13 Stock Research Checklist—Assets
Does the Company Have Any Hidden Assets That Have Been Overlooked by Wall Street?
Does the Company Have a Low Percentage of Net Receivables?
Does the Company Have More Pension Assets than Vested Benefits?
Are Any Large Shareholders or Raiders Working to Uncover the Value of the Under-Valued Asset Plays?
CHAPTER 14 Stock Research Checklist—Inventory
What Is the Inventory Buildup?
CHAPTER 15 Stock Research Checklist—Share Buybacks
Are the Company’s Total Outstanding Shares Decreasing over Time?
Has the Company Bought Back Shares Recently?
Does the Company Have Any Treasury Stock on its Balance Sheet?
Does the Company Have a Retirement of Stock on Its Balance Sheet?
CHAPTER 16 Stock Research Checklist—Insiders
Did an Insider Buy the Stock Recently?
Do the Insiders Own a High Percentage of the Company?
CHAPTER 17 Stock Research Checklist—Institutional
Is the Company not Followed Closely by Wall Street Analysts?
Does the Company Have a Small Percentage of Institutional Ownership?
CHAPTER 18 Stock Research Checklist—Inflation
Is the Company Able to Raise the Price of the Product or Service According to Inflation?
CHAPTER 19 Stock Research Checklist—Cyclical Company
Do You Understand the Relationship of the Company’s Revenue Cycle in Relation to Economic Cycles in a Cyclical Company?
CHAPTER 20 Stock Research Checklist—Turnaround
Has the Company Taken the Following Steps to Turn the Business Around?
CHAPTER 21 Stock Research Checklist—Stock Price
Does the Company Trade at a P/E Ratio That Is Less than Its Growth Rate?
Does the Stock Trade at a Discount to the Company’s Intrinsic Value?
Does the Stock Trade at a Discount to Its Book Value?
Does the Company Have Any Catalysts?
CHAPTER 22 Stock Research Checklist—Infosys
Are You Able to Understand the Business Thoroughly? Is It a Simple Business?
Does the Company Have Any Moat, Which Makes it Very Difficult for Competitors to Penetrate the Company’s Market Share?
What Is the Nature of the Business? Does It Operate in a Non-Exciting Industry?
Is the Company Involved in a Dirty Type of Business?
With National Chain Companies, Was the Company Successful in a Couple of Locations before Expanding Nationally?
Has the Company Dominated in a Particular Segment of the Market?
Is This Company Operating in a Hot Industry?
What Is the Company’s Earnings Growth over the Previous 10 Years? Does It Grow Constantly?
How Does the Company Use Retained Earnings? Are Retained Earnings Reflected in the Stock Price?
What Are the Company’s Owner Earnings for the Last 10 years? Does It Grow Consistently?
What Is the Company’s Recent Earning Momentum? Is It Comparable to Its Long-Term Growth Rate?
Does the Company Have Any One-Time Event That Recently Increased Earnings?
What Is the Company’s “Operating Cash Flow”? Does It Grow at a Constant Rate?
How Has the Business Performed in Previous Recessions?
If a Particular Product’s Success Attracted You to a Company, What Percentage of That Company’s Sales Come from That Product?
Does the Company Have Client Concentration?
Does the Company Have Manageable Debt?
Does the Company Have Manageable Short-Term Debt?
What Is the Company’s Current Ratio?
What Is the Company’s Long-Term Debt? Is It Manageable?
Does the Company Pay Little or No Interest Expense?
Does the Company Have Preferred Stock?
What Is the Company’s ROE for the Last 10 Years? Does It Trend Upward?
Does the Company Have More Equity When Compared with Long-Term Debt?
What Is the Company’s Net Profit Margin for the Last 10 Years? Does the Company Generate a Consistent Upward-Trend Profit Margin or at Least Maintain an Average Profit Margin?
What Is the Company’s Gross Profit Margin for the Last 10 Years? Does It Consistently Grow or at Least Maintain an Average Rate?
Does the Company Have a High Pretax Profit Margin?
What Is the Company’s ROA for the Last 10 Years? Is It Growing Constantly or at Least Maintaining an Average ROA for the Last 10 Years?
Calculate the ROIC for the Last 10 Years. Does the Company Have Consistent ROIC Numbers?
Does the Company Need to Spend Large Amounts of Money as a Capital Expenditure to Stay Competitive?
What Is the Company’s Investing Strategy? Is the Company Investing in Its Area of Expertise?
What Percentage of Revenue Is spent on Research and Development?
What Is the Company’s Growth Recently? What Plans Does Management Have to Grow the Business?
Does the Company Have Related-Party Transactions with the Family Members or Relatives of the Senior Management or Board of Directors?
Are You Able to Understand the Footnotes of the Company’s Financial Statements?
Is Management Candid in Its Performance Reporting?
Is Senior Management Success Oriented?
Do the Financial Numbers on the Company’s Earnings Release Match the Numbers on the Documents That Are Submitted to SEC (Especially Income Taxes Paid)?
Does Management Deliver What It Promises?
If You Are Buying the Stock for Dividend, Does the Company Pay the Dividend Without Interruption and Have a History of Raising Dividends?
What Is the Percentage of Earnings Paid as a Dividend? Is It a Small Percentage of the Revenue?
Does the Company Have Any Hidden Assets That Have Been Overlooked by Wall Street?
Does the Company Have a Low Percentage of Net Receivables?
Does the Company Have More Pension Assets than Vested Benefits?
If You Are Looking at Under-Valued Asset Plays, Are Any Large Shareholders or Raiders Working to Uncover the Value of the Company?
What Is the Inventory Buildup?
Are the Company’s Total Outstanding Shares Decreasing over Time?
Has the Company Bought Back Shares Recently?
Does the Company Have Any Treasury Stock on Its Balance Sheet?
Does the Company Have a Retirement of Stock on Its Balance Sheet?
Did an Insider Buy the Stock Recently?
Do the Insiders Own a High Percentage of the Company?
Is the Company Not Followed Closely by Wall Street Analysts?
Does the Company Have a Small Percentage of Institutional Ownership?
Is the Company Able to Raise the Price of the Product or Service According to Inflation?
If You Are Looking at a Cyclical Stock, Do You Understand the Relationship of the Company’s Revenue Cycle in Relation to Economic Cycles?
If you Are Looking at a Turnaround Companies, Has the Company Taken the Necessary Steps to Turn the Business Around?
Does the Company Trade at a P/E Ratio That Is Less than Its Growth Rate?
Does the Stock Trade at a Discount to the Company’s Intrinsic Value?
Does the Stock Trade at a Discount to Its Book Value?
Does the Company Have Any Catalysts?
CHAPTER 23 Intrinsic Value
Future Earnings
Infosys (INFY)—Owner Income Projection
PART III: INVESTMENT MANAGEMENT
CHAPTER 24 Margin of Safety
CHAPTER 25 Where to Search for Stock Prospects
Value Line
Value Line Investment Survey—Standard Edition
Value Line—Small and Mid-Cap Edition
Magic Formula
The Wall Street Journal
Company Visits
Magazines
Shopping Mall Visits
CHAPTER 26 Portfolio Management
Diversification
Number of Stocks in the Portfolio
Position Sizing
Managing the Portfolio
Diversification with Different Countries
CHAPTER 27 Selling Strategy
CHAPTER 28 Mr. Market and Investor Psychology
Fear
Greed
Emotionless Investing
Media
Market Timing
CHAPTER 29 Risk Management
Systematic Risk
Unsystematic Risk
CHAPTER 30 Options
Calls
Puts
LEAPS
CHAPTER 31 Cigar-Butt
CHAPTER 32 No Shortcut Approach
Identify the Stocks
Research Stocks
Calculate Intrinsic Value
Manage the Portfolio
Monitor the Company’s Portfolio
Make Sell Decisions
CHAPTER 33 Perfect Pitch
Bibliography
About the Author
Index