In video below, Warren Buffet outlines the general criteria he uses to buy stock or entire companies:
https://www.youtube.com/watch?v=2MHIcabnjrALinks to an external site. Warren Buffet speaking to MBA class at U of Florida
Starting at 24:40 of the video, Buffet outlines several principles:
- Invest in what you understand
- A wonderful business
- The business is like a castle with a moat (e.g., low cost at Geico, share of mind at Coca Cola)
- A Duke (management team) who is honest and hardworking, who defends the castle
- Widen the moat, throw in alligators and sharks (e.g., increase the competitive advantage)
- It is a stock where he would be willing to put it in a drawer for 5 years and not look at it (e.g., confidence in a long-term investment)
- Don’t pay a totally stupid price
Question: Imagine that you have inherited $100,000, on the condition that you use the money to buy 1 stock and hold it for 5 years – you can only sell after 5 years to get your money – i.e., analogous to putting 1 stock in the drawer and not looking for 5 years.
- What stock would you pick? (Give company name and stock symbol)
- What makes it a wonderful business?
- What is the “moat” of that company / stock?
- What is the company doing to widen the moat?