WARREN BUFFETT

Buffett is known as the worlds greatest ever investor and here are some of the rules that he follows: Commonsense Investment Rules. 1. Have a written or mental note of your investment plan and have the discipline to follow it. 2. Be flexible enough to change or evolve your investment strategies when sound judgement and conditions so warrant. 3. Study sales and earnings of a company and how they are derived. 4. Focus on your purchase candidate. Understand the firms products or services, the companys position in its industry, and how it compares with the competition. 5. Learn as much as possible about the people managing the business. 6. When you find a great stock value, dont be swayed by predictions for the stock market or the economy. 7. Sit on the sidelines in a cash position if you cant find investments of value based on your criteria. Many emotional investors make the mistake of buying at very high prices relative to value. 8. Define what you dont know as well as what you do know and stick to what you know. Evaluation Rules 1. Is the business understandable? 2. Are the CEO and top executives focused and capable based on the firms previous track record of sales and earnings and how the business is run? 3. Does management report candidly to shareholders? 4. Does the company have top quality, brand name products used repeatedly and high customer loyalty? 5. Does the company have a wide competitive edge and barriers to potential competition?

6. Is the business generating good owner earnings; free cash flows? 7. Does the business have a long-term history of increasing sales and earnings at a favourable rate of growth? 8. Has the company achieved a 15 percent or better return on shareholders equity and a return that compares favourably with alternative investments? 9. Has the company maintained a favourable profit margin compared with the competitors profit margin? 10. What are the goals of the business and the plans to achieve them? 11. What are the risks of the business? 12. Does the business have good financial strength with low or manageable debt requirements? 13. Is the stock selling at a reasonable price relative to future earnings and price potential? GLOSSARY Net Profit Margin = Net Income Sales Operating Profit Margin= Operating Earnings before Interest, Depreciation and Taxes Sales Book Value Per Share= Assets- Liabilities Number of Shares Outstanding Return on Shareholders equity = Debt to capital ratio = Net Income Common stock equity

Long-Term Debt Long-Term debt + Shareholders Equity