Warren Buffett’s 4 Steps to Picking a Good Share
I’m assuming that all living human beings know exactly who Warren Buffett is. For those of you who do
not form part of the living society, Warren Buffett is the godfather and king of all things investment,
entrepreneurship, business and finance. He’s among the richest people on earth, currently ranked at number 3 by
He outlined 4 basic Good Stock Identifiers
1) Understand the business
This is self-explanatory, you need to know what the business does and how it makes its money. You need
to know which sector the business operates in and who their competitors are. You need to understand what
they sell and how they sell it.
2) Sustainable Competitive Advantage
Warren Buffett describes this as intrinsic characteristics that give the business a deep and sustainable
competitive advantage. A Competitive advantage is something that gives a company edge over its competitors:
this can be anything from supply chain strategies, to product innovation. One of Warren Buffet’s most famous investments was in Coca Cola. When Warren Buffet first bought shares in Coca Cola (1988) there were many
sceptics who didn’t take into account Coke’s main competitive advantage: the taste that no one can replicate.
Coke has many other competitive advantages, like great marketing campaigns and its longevity – but many other businesses have that too. The taste Coke produces is its most intrinsic characteristic that no one else has, or
could possibly have. In 2012 Warren Buffett made 766% in gains on the shares he bought in Coke.
3) Able and Trustworthy Managers
Warren Buffett makes an interesting point here. Corporations, no matter how big or small are run by people.
Depending on who those people are, a business can either fail or do very well. The most epic example of able,
but untrustworthy managers was the whole Enron debacle. Good business, good competitive advantage, but
unethical and untrustworthy managers. If you had bought shares in Enron, you would have nothing to show for
4) Bargain Price
Warren Buffett’s final piece of advice is that the share price has to be right. You would have to buy it at a price
that allows for a margin of safety – this basically means buying a share at a point where you know that you can
make a profit.
Warren Buffett says that these principles aren’t popular because they are just too simple.