Warren Buffett: I choose businesses, not stocks | Entrepreneur

In his recently released annual letter to Berkshire Hathaway shareholders, Warren Buffett said the "secret" to his and his company's success is a strategy of investing in businesses that have both long-term favorable business characteristics and trustworthy management teams. Berkshire Hathaway owns stocks based on expectations of the long-term business performance of the business, not as a means to buy and sell for profit.

“We are not stock pickers, we are business pickers,” he said.

This strategy is called value investing, where the goal is to stick with the best performing stocks rather than trading stocks based on short-term price fluctuations. But not everyone can succeed with this strategy. In addition to Buffett's number one rule — "don't lose money" — here are four questions he asks when deciding whether to invest in a business.

Warren Buffett: Tôi chọn doanh nghiệp chứ không lựa cổ phiếu - Ảnh 1. — **Do you understand business?**

In addition to knowing how a business operates and what it offers consumers, you should also learn where the company's story will be in 10 years, or even decades. "If you're not willing to own a stock for 10 years, don't even think about owning it for 10 minutes," Warren Buffett wrote in his 1996 letter to shareholders.

Berkshire Hathaway famously missed out on tech companies Google and Amazon in the early 2000s because Buffett wasn’t sure he understood the companies’ long-term profitability, which made it harder to value the stocks. Despite missing out on Google and Amazon, other blue-chip investments like American Express and Coca-Cola have turned out to be huge wins.

This cautious approach could lead investors to miss out on more speculative opportunities. “We’ve missed a lot of things, but we’re going to keep doing it,” the billionaire investor said.

Does the business have a sustainable competitive advantage?

Buffett says the “most important factor” in choosing a successful business investment is the company’s competitive advantage. The more secure the competitive advantage, the more likely the company is to thrive for decades.

A competitive advantage could be having a strong brand that people are willing to pay for, like Coca-Cola. Or it could be a unique business model, like selling insurance directly to consumers instead of through insurance brokers, as is the case with Geico.

Is the leadership honest and competent?

Warren Buffett once said that he looks for three things in a manager or leader: intelligence, initiative, and integrity. But integrity is most important, because "if you have people without integrity, you want them to be lazy and dumb."

He doesn't want to work with unqualified managers, no matter how attractive the business's prospects. Berkshire Hathaway has never been successful in making deals with "bad people."

Integrity comes with trust. By investing in a business with good leadership, the billionaire won't have to spend a lot of time micromanaging every decision a leader makes.

Is the valuation reasonable?

As a passive investor, Buffett looks for companies that are trading below their intrinsic value. While there is no universal measure of value, companies with long-term earning potential typically have stable earnings, good cash flow, and little debt. When a stock price seems low relative to the company’s value, it’s a buying opportunity.

But that doesn't mean he looks for good bargains based on stock price alone. Simply getting a fair price for a company's stock can be an effective strategy. You're investing in the business for the long term, not just the stock price at the time of purchase.

“It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price,” Buffett wrote in his 1989 annual shareholder letter.

Warren Buffett's 65-year-old home

According to CNBC, Mr. Buffett - CEO of Berkshire Hathaway - currently lives in a 5-bedroom house in Omaha, Nebraska. This is the house he bought for $31,500 in 1958, equivalent to $329,505 today.

"Buffett is very real," said CNBC journalist Becky Quick, who has a long-standing relationship with Buffett and frequently interviews him. "His realness is that he lives what he preaches."

Buffett has repeatedly talked about the benefits of home ownership, and in his 2010 annual letter to Berkshire shareholders, he called his home the third-best investment of his career. (The two best investments were his wedding rings.)

Buffett’s 6,000-square-foot home is just a five-minute drive from Berkshire Hathaway’s headquarters. Built in 1921, the home is made of stucco, a type of mortar made from natural clay and ultra-fine mineral deposits. Over the years, the original home has undergone several additions and upgrades. The home is currently valued at about $1.2 million, according to real estate site Zillow.

For now, it appears that Buffett - currently the world's fifth-richest person on the Bloomberg Billionaires Index, with a personal net worth of $109 billion - has no plans to upgrade to a more luxurious home.

"I'm happy there. I'd move if I were happier somewhere else," Buffett said in a 2009 CNBC interview. He insisted it was a good home: "I'm warm in the winter and cool in the summer. Everything is convenient for me. I can't imagine having a better home."

Despite being one of the richest people on the planet, Buffett has never been a big spender. He only traded in his $20 Samsung SCH-U320 flip phone for an iPhone 11 in 2020, while Apple stock is Berkshire’s third-largest investment, behind insurance and railroads.

When he switched to the iPhone 11, Buffett said his flip phone was "permanently broken" and that he mainly used the new phone for making and receiving calls. "You're looking at an 89-year-old guy who's just getting used to the iPhone," he said, adding that he doesn't use all of the iPhone's features like most people.

Additionally, Buffett has never spent more than $4 on breakfast.

During his five-minute morning commute to the office, Buffett typically picks up breakfast at McDonald's. There are three typical menu items he chooses: two sausage patties for $2.61; one sausage, one egg, and cheese for $2.95; or one bacon, one egg, and cheese for $3.17.

In the 2011 HBO documentary "Becoming Warren Buffett," the legendary investor explained how he chooses his breakfast menu. "The $3.17 menu has bacon, eggs, and cheese biscuits. But if the market is down that morning, I'll skip the $3.17 menu and go for the $2.95 menu," Buffett said.

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