Buffett: The Making of an American Capitalist

by Roger Lowenstein

With this notion of value in mind, Buffett tried to find stocks whose “value” was greater—significantly greater—than their price. Buffett’s guides to finding such a stock could be summarized quickly: • Pay no attention to macroeconomic trends or forecasts, or to people’s predictions about the future course of stock prices. Focus on long-term business value—on the size of the coupons down the road. • Stick to stocks within one’s “circle of competence.” For Buffett, that was often a company with a consumer franchise. But the general rule was true for all: if you didn’t understand the business—be it a newspaper or a software firm—you couldn’t value the stock. • Look for managers who treated the shareholders’ capital with ownerlike care and thoughtfulness. • Study prospects—and their competitors—in great detail. Look at raw data, not analysts’ summaries. Trust your own eyes, Buffett said. But one needn’t value a business too precisely. A basketball coach doesn’t check to see if a prospect is six foot one or six foot two; he looks for seven-footers.