{"id":19693,"date":"2023-07-16T23:56:00","date_gmt":"2023-07-16T15:56:00","guid":{"rendered":"https:\/\/www.granitefirm.com\/blog\/us\/?p=19693"},"modified":"2024-07-12T17:47:30","modified_gmt":"2024-07-12T09:47:30","slug":"common-criteria-buffett","status":"publish","type":"post","link":"https:\/\/www.granitefirm.com\/blog\/us\/2023\/07\/16\/common-criteria-buffett\/","title":{"rendered":"Common criteria when Buffett pick up stocks"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #ffffff;color:#ffffff\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #ffffff;color:#ffffff\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/07\/16\/common-criteria-buffett\/#2007_shareholder_letter\" >2007 shareholder letter<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/07\/16\/common-criteria-buffett\/#Basic_common_criteria\" >Basic common criteria<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/07\/16\/common-criteria-buffett\/#Moat\" >Moat<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/07\/16\/common-criteria-buffett\/#Enduring\" >Enduring<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/07\/16\/common-criteria-buffett\/#No_superstar_manager\" >No superstar manager<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/07\/16\/common-criteria-buffett\/#In_short\" >In short<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/07\/16\/common-criteria-buffett\/#2003_shareholder_letter\" >2003 shareholder letter<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/07\/16\/common-criteria-buffett\/#Common_creteria\" >Common creteria<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/07\/16\/common-criteria-buffett\/#Common_creteria_for_buying_stocks\" >Common creteria for buying stocks<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/07\/16\/common-criteria-buffett\/#Similar_to_his_M_A_criteria\" >Similar to his M&amp;A criteria<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/07\/16\/common-criteria-buffett\/#Related_articles\" >Related articles<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2007_shareholder_letter\"><\/span>2007 shareholder letter<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In his <a href=\"https:\/\/berkshirehathaway.com\/letters\/2007ltr.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">2007 shareholder letter<\/a>, Buffett proposed the criteria for his favorite listed companies.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Basic_common_criteria\"><\/span>Basic common criteria<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Charlie and I look for companies that have:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>a) a business we understand; <\/li>\n\n\n\n<li>b) favorable long-term economics; <\/li>\n\n\n\n<li>c) able and trustworthy management; and <\/li>\n\n\n\n<li>d) a sensible price tag. <\/li>\n<\/ul>\n\n\n\n<p>We like to buy the whole business or, if management is our partner, at least 80%. When control-type purchases of quality aren\u2019t available, though, we are also happy to simply buy small portions of great businesses by way of stockmarket purchases. It\u2019s better to have a part interest in the Hope Diamond than to own all of a rhinestone.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Moat\"><\/span>Moat<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A truly great business must have an enduring \u201cmoat\u201d that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business \u201ccastle\u201d that is earning high returns. Therefore a formidable barrier such as a company\u2019s being the lowcost producer (GEICO, Costco) or possessing a powerful world-wide brand (Coca-Cola, Gillette, American Express) is essential for sustained success. Business history is filled with \u201cRoman Candles,\u201d companies whose moats proved illusory and were soon crossed.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Enduring\"><\/span>Enduring<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Our criterion of \u201cenduring\u201d causes us to rule out companies in industries prone to rapid and continuous change. Though capitalism\u2019s \u201ccreative destruction\u201d is highly beneficial for society, it precludes investment certainty. A moat that must be continuously rebuilt will eventually be no moat at all.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"No_superstar_manager\"><\/span>No superstar manager<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Additionally, this criterion eliminates the business whose success depends on having a great manager. <\/p>\n\n\n\n<p>But if a business requires a superstar to produce great results, the business itself cannot be deemed great. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"In_short\"><\/span>In short<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Long-term competitive advantage in a stable industry is what we seek in a business. If that comes with rapid organic growth, great. But even without organic growth, such a business is rewarding.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2003_shareholder_letter\"><\/span>2003 shareholder letter<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Common_creteria\"><\/span>Common creteria<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>In <a href=\"https:\/\/berkshirehathaway.com\/letters\/2003ltr.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Buffett&#8217;s 2003 shareholder letter<\/a> (below content in italics in this article is from his 2003 shareholder letter), he put forward his views on the governance of listed companies.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Common_creteria_for_buying_stocks\"><\/span>Common creteria for buying stocks<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The shortage of attractively-priced stocks in which we can put large sums doesn\u2019t bother us, providing we can find companies to purchase that:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>(1) have favorable and enduring economic characteristics; <\/li>\n\n\n\n<li>(2) are run by talented and honest managers and <\/li>\n\n\n\n<li>(3) are available at a sensible price. <\/li>\n<\/ul>\n\n\n\n<p>We have purchased a number of such businesses in recent years, though not enough to fully employ the gusher of cash that has come our way. In buying businesses, I\u2019ve made some terrible mistakes, both of commission and omission. Overall, however, our acquisitions have led to decent gains in per-share earnings.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Similar_to_his_M_A_criteria\"><\/span>Similar to his M&amp;A criteria<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Careful readers should not be difficult to see that these three points are actually quite similar to his merger and acquisition criteria. Regarding the M&amp;A criteria he has emphasized many times, readers are referred to my other blog article for detailed explanation: &#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/04\/09\/buffetts-acquisition-criteria\/\">Buffett&#8217;s Acquisition Criteria<\/a>&#8220;.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"150\" height=\"98\" src=\"https:\/\/www.granitefirm.com\/blog\/us\/wp-content\/uploads\/sites\/2\/2022\/07\/b-1.jpg\" alt=\"common criteria\" class=\"wp-image-11814\"\/><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"block-9d402b81-75c9-41fa-9a2d-6be1252e074e\"><span class=\"ez-toc-section\" id=\"Related_articles\"><\/span>Related articles<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/07\/16\/common-creteria-buffett\/\">Common creteria when Buffett pick up stocks<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/12\/14\/buffett-hold-for-long-haul\/\" target=\"_blank\" rel=\"noreferrer noopener\">Is Buffett no longer hold for long haul? TSMC, HP, and US Bancorp cases study<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/04\/27\/buffett-portfolio\/\" target=\"_blank\" rel=\"noreferrer noopener\">The commonalities of Buffett portfolio \u2013 cheap, fixed income, repurchase<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/04\/09\/buffetts-acquisition-criteria\/\">Buffett&#8217;s Acquisition Criteria<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/04\/27\/predictabe-buffetts\/\">Predictabe is Buffett&#8217;s favorite type of business to invest in<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/04\/21\/high-profit-companies\/\">How does Buffett select high-profit companies?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/20\/long-term-investment\/\">How Buffett Structures His Long-Term Investment Portfolio<\/a>&#8220;<\/li>\n<\/ul>\n\n\n\n<p><em><strong>Disclaimer<\/strong><\/em><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>The content of this site is the author\u2019s personal opinions and is for reference only. I am not responsible for the correctness, opinions, and immediacy of the content and information of the article. Readers must make their own judgments.<\/em><\/li>\n\n\n\n<li><em>I shall not be liable for any damages or other legal liabilities for the direct or indirect losses caused by the readers&#8217; direct or indirect reliance on and reference to the information on this site, or all the responsibilities arising therefrom, as a result of any investment behavior.<\/em><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Buffett&#8217;s 2003 shareholder letter lays out his common criteria for buying stocks<\/p>\n","protected":false},"author":1,"featured_media":11814,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11,18,204],"tags":[],"class_list":["post-19693","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-buffett","category-investing-strategy","category-moats-and-competitive-advantages"],"_links":{"self":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/19693","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/comments?post=19693"}],"version-history":[{"count":23,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/19693\/revisions"}],"predecessor-version":[{"id":37967,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/19693\/revisions\/37967"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media\/11814"}],"wp:attachment":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media?parent=19693"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/categories?post=19693"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/tags?post=19693"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}