#1 The Right Rate of Return on Shareholder Equity
#2 The Safety Net: The right Rate of Return on Total Capital
#3 The Right Historical Earnings
#4 When Debt Makes Buffett Nervous
#5 The Right Kind of Competitive Product or Service
#6 How organized Labor Can Hurt Your Investment
#7 Can the Product Be Priced To Keep Up With Inflation
#8 Perceiving the Right Operational Costs
#9 Can the Company Repurchase Shares To The Investors Advantage
#10 Does The Value Added By Retrained Earnings Increase the Market Value of The Company
(book value has grown by 32% and price has grown by 50%)
Other Notes:
Businesses make money in two ways: by having the highest profit margins possible and/or by having the highest inventory turnover ratio.
Stick/Price companies have customers that buy based off one thing: Price. Airlines, lumber, paper. In this industry, the lowest cost provider wins because it has the most flexibility on price.
Look at ROE on individual stocks, but for banks, look at earnings/total assets. 1% is good, 1.5% is fantastic.
Example:
A stock has grown its earnings at an average rate of 17% and currently has earnings of $.96. In 10 years, it will have earnings of $4.14. Using the average P/E of 9-12.8, the stock will return 14.4% – 18.5%.
Related Book Notes
