Investing Guidelines: Value Tenets 139PUTTING IT ALL TOGETHER
Warren Buffett has said more than once that investing in stocks is really
simple: Find great companies that are run by honest and competent
people and are selling for less than they are intrinsically worth. No
doubt many who have heard and read that remark over the years have
thought to themselves, “Sure, simple if you’re Warren Buffett. Not so
simple for me.”
Both sentiments are true. Finding those great companies takes time
and effort, and that is never easy. But the next step—determining their
real value so you can decide whether the price is right—is a simple mat-
ter of plugging in the right variables. And that is where the investment
tenets described in these chapters will serve you well:
- The business tenets will keep you focused on companies that are
relatively predictable. If you stick to those with a consistent op-
erating history and favorable prospects, producing basically the
same products for the same markets, you will develop a sense of
how they will do in the future. The same is true if you concen-
trate on businesses that you understand; if not, you won’t be able
to interpret the impact of new developments. - The management tenets will keep you focused on companies that
are well run. Excellent managers can make all the difference in a
company’s future success. - Together, the business and management tenets will give a good
sense of the company’s future earnings potential. - The f inancial tenets will reveal the numbers you need to make a
determination of the company’s real value. - The value tenets will take you through the mathematics neces-
sary to come up with a f inal answer: Based on everything you
have learned, is this a good buy?
The two value tenets are crucial. But don’t worry too much if you
are unable to address the other ten fully. Don’t let yourself become par-
alyzed by too much information. Do the best you can, get started, and
keep moving forward.