In Buffett’s annual letter to Berkshire Hathaway shareholders published in 2014, he explained a test he and his business partner Charlie Munger applied before purchasing any stock.
If there is anyone who knows about investments in Warren Buffett. A note by Yahoo Finance compiled the “expert test” before investing in stocks in 2024.
In the annual letter of Buffett to the shareholders of Berkshire Hathaway published in 2014, he explained a test he and his business partner Charlie Munger applied before buying any stocks. Munger passed away in November 2023, but Buffett is sure to continue using this same process in 2024.
Investments: the two steps to the Buffett test
- Determine if you can “estimate with reasonableness a profit range for five years or more”
- If the answer to the first step is yes, buy the stock only if your price is reasonable compared to the lower end of the estimated earnings range
“In the 54 years that [él y Munger] We have worked together, we have never given up on an attractive purchase because of the macro or political environment, or to other people’s opinions. In fact, these topics They never arise when we make decisions.”
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Investments: how to follow your advice
Although the Buffett test To buy shares is simple, it is easier said than done. The hardest part is estimate the profits of a company for the next few years.
Buffett readily acknowledged that he and Munger had often been unable to estimate future earnings with some degree of confidence, saying that was “normally the case.” When this occurred, she stated succinctly, “We just moved on to other perspectives.”
He also noted that he and Munger had made mistakes sometimes when buying stocks. Staying within your “circle of competence” helped minimize those mistakes, but didn’t eliminate them completely. This is an important point. Investors will be better equipped to estimate the future earnings of stocks in industries they are familiar with.
Every investor should follow Buffett’s two-step process on your own before buy shares in 2024.
In his 2014 letter to Berkshire shareholders, he argued that at most investors They would be better off putting their money in low-cost S&P 500 index funds rather than trying to pick individual stocks. Buffett even predicted that anyone who follows this advice “is virtually certain to you will get satisfactory results” long-term.
Source: Ambito
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