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...6. Know what a good company looks like.
The list of essential characteristics Buffett looks for in an investment is surprisingly short. He wants a business that’s easy to understand, with a consistent operating history; good long term prospects, possibly due to some durable competitive advantages, or “moats”; a trustworthy, high-quality management team; and solid financials: high margins, high return on equity, and high free cash flow. He does like growth, but less so than investors who are focused on the short term, since it’s the nature of capitalism for growth not to last more than a few years as outsize profits attract fierce competition. When asked what metrics he uses in his investment decisions, his response is that if a computer could do valuation then everyone could do it, and if everyone could do it then the market would be efficient and there would be no bargains. Number geeks want math to provide easy answers, but it doesn’t. Buffett’s style of investing is at least as much art as science.
Hoosier's note: I know that you have probably read a lot about Warren Buffett, but, I strongly recommend that you read this article.