Warren Buffett on How to Buy a Business

Warren shares some valuable tips on buying companies that are still relevant for smaller players. Here are 12:

“Cash combined with courage in a time of crisis is priceless.”

“Price is what you pay. Value is what you get.”

“Why not invest your assets in the companies you really like? As Mae West said, ‘Too much of a good thing can be wonderful.’”

Warren Buffett on how to buy a business.

“Your goal as an investor should be simply to purchase, at a rational price, a part interest in an easily understood business whose earnings are virtually certain to be materially higher, five, ten and twenty years from now. Over time, you will find only a few companies that meet those standards— so when you see one that qualifies, you should buy a meaningful amount of stock.” In Warren’s case, he typically buys the entire company.

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

“Look for the durability of the franchise. The most important thing to me is figuring out how big a moat there is around the business. What I love, of course, is a big castle and a big moat with piranhas and crocodiles.”

“When managers want to get across the facts of the business to you, it can be done within the rules of accounting. Unfortunately, when they want to play games, at least in some industries, it can also be done within the rules of accounting.”
On how economic fluctuations create motivated sellers willing to sell at a  discount. “Profit from folly rather than participate in it.”

On the importance of ongoing frugality: “Whenever I read about some company undertaking a cost-cutting program, I know it’s not a company that really knows what costs are all about. Spurts don’t work in this area. The really good manager does not wake up in the morning and say, ‘This is the day I’m going to cut costs,’ any more than he wakes up and decides to practice breathing.”

Deal only with those who believe in their products and services. “I don’t want to be on the other side of the table from the customer. I was never selling anything that I didn’t believe in myself or use myself.”

“If past history was all there was to the game, the richest people would be librarians.”

On when to sell: “Visiting the vet, he said: ‘Can you help me? Sometimes my horse walks just fine and sometimes he limps.’ The vet’s reply was pointed. ‘No problem—when he’s walking fine, sell him.’”