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Warren Buffett is one of the world's most famous investors. The good news is that everyone can borrow from Buffett's rules, which has led to his great success. The Internet space is full of Oracle Omaha stuff, as well as Buffett's investment choice and rules that he respects.
Investors have long recognized Warren Buffett's ability to pick winning bets. This is evidenced by the historical performance of his fund rising to over 20% of his life
What is the secret to Buffett's success and can you follow his genius approach to bring you such success? In fact, the answer is "yes" and "no". Yes, because Buffett has long since revealed his investment practices, which have been the subject of thousands of studies and articles
No, because the environment Whoever has invested "the oracle of Omaha" over the last fifty years has been "unique" in itself, and there is no guarantee that what Buffett thought and did would succeed in the next fifty years [19659005]. let's see how Buffett selects his investments, which would certainly be beneficial for any investor. And then we will try to implement some of these approaches on the BSE and SOFIX companies
Buffett belongs to so-called "value investors" – a strategy popularized by his mentor and mentor, Benjamin Graham. This strategy focuses primarily on the internal value of a company rather than on its course and technical performance.
Determining the internal value of a business requires a thorough understanding of its business and a lot of work related to the badysis of financial statements and various fundamental factors
Once the internal value is determined, it is compared to the current price at which the business is valued by the market and in case of significant discount (the internal value is significantly higher than the price at which the company trades) buy its shares
Here are some key ratios and factors observed by Buffett in Choosing Undervalued Companies:
1. Buffett seeks companies that provide investors with a long and sustained return on equity (ROE).
The higher the ratio, the better. Buffett recommends investors to look for a ratio of more than 15%
2. How many companies are in debt?
Buffett does not like particularly indebted companies. It monitors the level of debt relative to equity. Any ratio above 1 is an alarming "investor value" signal. In addition, it is important that income growth be due to the increase in capital employed or generated by other factors
3. What are the margins of profits?
Buffett is looking for companies with a good profit margin. A particularly positive signal is when this margin increases in recent years. It is important to have data for several years in order to be able to follow the long-term trend of this indicator
In addition, Buffett finds the value in the book value ratio and the future cost-benefit ratio (based on the forecasts for the next annual profit)
4. What is the specificity of the products of the company
The products and services of the company are another important indicator for Buffett. Could these products or services be easily replaced by consumers and what is the threshold for entering the sector? These are all important questions for the Oracle of Omaha. Does the company have competitive advantages?
5. What is 1965 the main factor in the decision to invest or not in the shares of a company
If the company is a leader, he has good products and services, which is difficult to replace, does not have a large debt-to-equity ratio and is traded with a discount on its internal value, it's the ideal candidate for the Buffett portfolio. And why not for yours?
6. What is the management of the company
Before addressing the "blue chips" native and those that best meet Buffett's investment criteria, we let's just look at the largest position in the portfolio of the
Buffett bought shares of the US consumer electronics manufacturer two years ago, and has since continued to increase its position to become the largest of his portfolio
Buffett bought more than 110 million new shares of the company for the last This made the company the largest market share in Buffett's portfolio – with a 21.27% share.
This is not surprising given Apple's largest market capitalization company in the world with such a value exceeding $ 930 billion, and the company having the highest weight in the indices, like the Nasdaq 100 and the S & P 500.
Interestingly, Buffett did not hold the shares of Apple in 2011, although more then "The Oracle's "Omaha" defines the company as "phenomenal".
According to GuruFocus, Buffett has achieved an average income A long time ago, the company's stock met the demands of the engineering investor for a company to channel funds to him.
How did Buffett meet Buffett's criteria
When Buffett first looked at Apple's shares, with a payback rate of one of the largest among the largest US companies and nearly three times the recommended 15% Buffett Return on Investment (BU)
. was at a level of 16%, an unusually high level for the largest market This is a remarkable margin that, although slightly down in recent years, remains at very high levels that all other gem companies would envy.
Apple was not in debt at that time, so it meets one more criterion. Plus, as a bonus, the cache of archives that it owned (and continues to hold) as well as the fact that he has started to return it to the shareholders through the paid dividend and the registration program. for the repurchase of the shares
Of 2012 year e 2016e, Apple returned to the shareholders 163 billion $
What do the SOFIX components look like on the criteria Buffett
Here is how things go in companies, SOFIX components, based on the basic criteria of Buffett. We will report the quantitative ratios (since the determination of the quality and reliability of the management of a company is rather subjective, and that everyone must do it for itself.)
We will put aside the indebtedness of the components of the index, no company having a particularly large debt ratio, which is often a serious problem for Western companies. This is very easily seen from the table below
The problem is that none of the SOFIX companies currently have a particularly good ROE (return on equity) ratio, no business with a higher proportion of the recommended at least 15%. The closest to this border is the Stara Planina Reserve with a ratio of 14.5%
In terms of book value, the native "blue chips" seem to be fairly valued, many of them even under- Estimated (taking into account coefficient less than 1, recommended by Buffett.)
Taking into account the cost-benefit metric, several companies have a ratio below the average of the index. These are Chimimport, Central Cooperative Bank and Industrial Holding Bulgaria with single digits
Of course, the low price / earnings ratio is not a coefficient that can be used alone to make decisions that are not. investment. It has to be combined with other ratios and, most importantly, sales growth. Because traditionally, with a low ratio, firms in a mature phase and with a low rate of growth of their sales are distinguished
Among the companies mentioned above, we distinguish the shares of Industrial Holding Bulgaria, which have the second highest ratio If we consider sales growth, we can distinguish several companies on this indicator, Albena, Holding Varna and Sirma Group Holding. In fact, the last company may give up automatically because Buffett does not invest in technology companies (although this statement is a little contradictory if its investments in IBM and Apple are taken into account). [19] In other words, Buffett loves the financial and insurance companies invariably have been present in his portfolio over the last few decades. It should be noted, however, that this type of companies is valued in a slightly different way than traditional companies because of the nature of their business.
Yet, in this line of thinking, it is quite possible in Buffett's genius to see financial companies, components of SOFIX. One of them can be a cooperative central bank. In addition to its lowest price / earnings ratio, it also displays one of the highest stock returns. The profit margin is the third highest in the index
Given the specifics of banking activity, Buffett would likely see specific bank ratios such as liquidity ratios, non-performing loans, structure and the quality. credit portfolio, quality of management, etc.
With a good rating overall, there is another position that is likely to spark the interest of Buffett – Stara Planina Hold. In addition to the highest return on equity, almost 15%, the stake has something very valuable for Buffett, the dividend.
The holding company has paid dividends in the last five years. In addition, the dividend has increased in each of the last four years. While the growth in dividend growth has slowed considerably over the last two years – around 5%, it is no less true that the holding company maintains its growth policy when dividends are paid.
SOFIX only added to its value 33%, compared to the 82.3% increase in the shares of Stara Planina Hold. For five years, the Blue Chip index generated a return of 42.7% for investors, 174% for Stara Planina Hold. (excluding dividends)
While we are on the dividend issue, probably another component of the native index, this would attract the attention of Buffett – Advance Terefond. The company has been paying dividends for nine years. This led to a return of 200% for investors for this period.
* The material is badytical and is not a board on the purchase or sale of shares on the ESB
l & rdquo; Article is published on infostock.com
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