Buying a Business 59from the company’s f inancial statements. They behave as if the market’s
ever-changing price is a more accurate ref lection of their stock’s value
than the business’s balance sheet and income statement. They draw or
discard stocks like playing cards. For Buffett, the activities of a common
stock holder and a business owner are intimately connected. Both
should look at ownership of a business in the same way. “I am a better
investor because I am a businessman,” Buffett says, “and a better busi-
nessman because I am an investor.”^18
THE WARREN BUFFETT WAYBusiness Tenets- Is the business simple and understandable?
- Does the business have a consistent operating history?
- Does the business have favorable long-term prospects?
Management Tenets- Is management rational?
- Is management candid with its shareholders?
- Does management resist the institutional imperative?
Financial Tenets- What is the return on equity?
- What are the company’s “owner earnings”?
- What are the prof it margins?
- Has the company created at least one dollar of market
value for every dollar retained?
Value Tenets- What is the value of the company?
- Can it be purchased at a signif icant discount to its value?