9 Essential Questions To Ask When Buying A Business
So you’re thinking of buying a business or investing in a stock? First you need to learn the 9 most essential questions to ask when buying a business.
These questions are adapted from the book Buffettology: The Previously Unexplained Techniques That Have Made Warren Buffett The World’s Most Famous Investor by Mary Buffett and David Clark. Mary Buffett is actually Warren Buffett’s former-daughter-in-law. She says that Warren uses a similar line of questioning when he is thinking of buying a business.
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9 Essential Questions To Ask When Buying A Business
#1 Does the Business Have an Identifiable Monopoly?
#2 Are the Earnings of the Company Strong and Showing an Upward Trend?
#3 Is the Company Conservatively Financed?
#4 Does the Business Consistently Earn a High Rate of Return on Shareholders’ Equity?
#5 Does the Business Get to Retain its Earnings?
#6 How Much Does the Business Have to Spend on Maintaining Current Operations?
#7 Is the Company Free to Reinvest Retained Earnings in New Business Opportunities, Expansion of Operations, or Share Repurchases? How Good a Job Does the Management Do at This?
#8 Is the Company Free to Adjust Prices to Inflation?
#9 Will the Value Added by Retained Earnings Increase the Market Value of the Company?
To how to invest like Warren Buffett, be sure to read Buffettology by Mary Buffett and David Clark:
Buffettology - Description
Buffettology: The Previously Unexplained Techniques That Have Made Warren Buffett the World's Most Famous Investor by Mary Buffett & David Clark
"Buffettology" is the first book from someone who, thanks to personal and professional access to Warren Buffett, has been uniquely positioned to learn from the master. Mary Buffett had the privilege-- during her twelve years as his daughter-in-law-- of sharing some of this very private genius's informal discussions of his investing philosophy, and now she shares some of her invaluable observations with us. This breakthrough book offers a full-blown explanation of how Buffett uses "Business Perspective Investing" as a wealth-building tool. His strategy is not so much to "pick stock" but to search for and invest in excellent companies whose intrinsic value and potential earnings he can reasonably predict through a series of steps we learn about throughout the book. Citing many fascinating case histories and examples, "Buffettology" shows us what kinds of companies Buffett looks for and why, and which he avoids and why. The authors show us the mathematical models and equations Buffett uses to determine the basic value and earnings potential of his final choices (and the right price to pay, for which he is willing to wait). We also learn how with the aid of an inexpensive, widely available handheld calculator, anyone can do similar equations. In addition to providing such in-depth analysis, this book offers two more firsts. One is a chapter on Buffett's rarely discussed and extremely successful arbitrage operations. The book gives us the arbitrage equation he uses to determine the positions he should take. The other is a comprehensive list and brief analysis of fifty-four companies in which Buffett has invested and the authors believe he continues to follow, many of which have never before been publicly identified as "Buffett companies".
Buffettology - Review
Americans are infatuated with the stock market. The number of households that own stock has increased from around 20 percent in the early 1980s to over 40 percent today. The market offers the hope of quick wealth and early retirement, and just about everyone who is in the market is looking for an edge, from sources such as CNBC and Wall Street Week to the Beardstown Ladies and "The Motley Fool." So it should be no surprise the most successful investor of our time--Warren Buffett--has been the subject of dozens of books and magazine articles. The value of Buffett's company, Berkshire Hathaway, has increased from $18 per share in 1965 to over $70,000 per share today. The interest in Buffett has spawned an approach to investing called "Buffettology," which is the subject of a book by the same name written by Buffett's former daughter-in-law, Mary Buffett.
In Buffettology, Mary Buffett, with the help of David Clark, details Warren Buffett's approach to investing. It's a style of investing based on the work of Benjamin Graham and one that requires a quality that most investors lack--discipline. Mary Buffett writes, "As you read through this book you will come to see that having a business perspective on investing is more about discipline than philosophy.... In short, other people's follies, brought on by fear and greed, will offer you, the investor, the opportunity to take advantage of their mistakes and benefit from the discipline of committing capital to investment only when it makes sense from a business perspective.... You will find that almost everything that relates to business perspective investing is alien to Wall Street folklore.
Buffettology examines Buffett's methods for valuing companies and selecting stocks--it even encourages you to buy a calculator and work through the valuation formulas that Buffett uses when researching companies to buy. The book not only serves as a useful guide to understanding how Buffett invests, it's an excellent primer to investing in stocks, whether you plan to become a Buffettologist or not. Highly recommended. --Harry C. Edwards, Business editor
Buffettology: The Previously Unexplained Techniques That Have Made Warren Buffett The World’s Most Famous Investor by Mary Buffett and David Clark
Mary Buffett, former daughter-in-law of this legendary financial genius and a successful businesswoman in her own right, has teamed up with noted Buffettologist David Clark to create Buffettology, a one-of-a-kind investment guide that explains the winning strategies of the master.