Movements of the stock market

Buffett points out that neither he nor his partner Charlie Munger can predict “winning and losing years in advance” (“we don’t think anyone else can either”), he writes that “we’re certain, for example, that the economy will be in shambles throughout 2009 – and, for that matter, probably well beyond – but that conclusion does not tell us whether the stock market will rise or fall.”

- From 2008 Berkshire Hathaway Annual Letter

Value investing checklist

In simple terms 'Value Investing' means buying a stock, or indeed a business, at less than its intrinsic value.

The parameters that I have chosen include:
1. ROE and / or ROC of more than 15%
2. PE ratio less than 13%
3. Dividend yield more than 3%
4. Debt to Equity ratio of less than 1 (this parameter is not applicable for banking / financial companies)
5. Price to Book Value ratio of less than 3.5
6. Historical Growth in EPS (over last 10 years) > 7%
7. Net Margin ratio greater than 1.2 times of industry average

- Warren Buffett Watch

Buffett's best advice

If you can grasp this simple advice from Warren Buffett, you should do well as an investor.

Buffett recommends that investors look for companies that deliver outstanding return on capital and produce substantial cash profits. He also suggests that you look for companies with a huge economic moat to protect them from competitors. You can identify companies with moats by looking for strong brands, alongside consistent or improving profit margins and returns on capital.

Buffett advises that you wait patiently for opportunities to purchase stocks at a significant discount to their intrinsic values -- as calculated by taking the present value of all future cash flows.

- Motley Fool