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Creating a Portfolio Like Warren Buffett: A High-Return Investment Strategy

Book Description

The practical guide to investing the Warren Buffett way

Creating a Portfolio like Warren Buffett: A High Return Investment Strategy highlights actual trades author Jeeva Ramaswamy has successfully executed using principles established by investment guru Warren Buffet. Clearly explaining how Buffett's principles can be used to make specific investments the book, unlike other investment guides, also clearly explains how to apply Buffett's exit strategies as they pertain to holding or selling positions.

Giving readers a complete overview of Buffett's methodologies and how to apply them, the book is a step-by-step stock research checklist and comprehensive guide to investing and managing a successful stock portfolio. It includes detailed instructions to:

  • Determine where to search for stock prospects

  • Thoroughly research stocks using a stock research checklist

  • Confidently make buy and sell decisions

  • Expertly manage your portfolio

Packed with specific stock examples, real-life calculations, and expert tips, Creating a Portfolio like Warren Buffett is your guide to harnessing the market savvy of an investing legend.

Table of Contents

  1. Cover
  2. Title page
  3. Copyright page
  4. Dedication
  5. Acknowledgments
  6. PART I: WARREN BUFFETT INVESTMENT PRINCIPLES
    1. CHAPTER 1 Replicating Warren Buffett’s Investment Success
    2. CHAPTER 2 Business-Like Investing
    3. CHAPTER 3 Long-Term Investing
      1. Capital Gains Taxes
      2. Broker Commission
    4. CHAPTER 4 Permanent Loss of Capital
      1. Scenario 1
      2. Scenario 2
  7. PART II: STOCK RESEARCH CHECKLIST
    1. CHAPTER 5 Stock Research Checklist—Business Characteristics
      1. Are You Able to Understand the Business Thoroughly? Is It a Simple Business?
      2. Does the Company Have any Moat, which Makes It Difficult for Competitors to Penetrate Its Market Share?
      3. What Is the Nature of the Business? Does It Operate in a Non-Exciting Industry?
      4. Is the Company Involved in a Dirty Type of Business?
      5. With National Chain Companies, Was the Company Successful in Multiple Locations before Expanding Nationally?
      6. Has the Company Dominated in a Particular Segment of the Market?
      7. Is This Company Operating in a Hot Industry?
    2. CHAPTER 6 Stock Research Checklist—Earnings
      1. What Is the Company’s Earnings Growth over the Previous 10 Years? Does It Grow Constantly?
      2. How Does the Company Use the Retained Earnings? Do the Retained Earnings Reflect in the Stock Price?
      3. What Are the Company’s Owner Earnings for the Past 10 years? Does It Grow Consistently?
      4. What Is the Company’s Recent Earning Momentum? Is It Comparable to Its Long-Term Growth Rate?
      5. Does the Company Have Any One-Time Event That Recently Increased Earnings?
      6. What Is the Company’s “Operating Cash Flow”? Does It Grow at a Constant Rate?
      7. How Has the Business Performed in Previous Recessions?
      8. If a Particular Product’s Success Attracted You to a Company, What Percentage of That Company’s Sales Come from That Product?
      9. Does the Company Have Client Concentration?
    3. CHAPTER 7 Stock Research Checklist—Debt
      1. Does the Company Have Manageable Debt?
      2. Does the Company Have Manageable Short-Term Debt?
      3. What Is the Company’s Current Ratio?
      4. What Is the Company’s Long-Term Debt? Is It Manageable?
      5. Does the Company Pay Little or No Interest Expense?
      6. Does the Company Have Preferred Stock?
    4. CHAPTER 8 Stock Research Checklist—Equity
      1. What Is the Company’s ROE for the Last 10 Years? Does It Trend Upward?
      2. Does the Company Have More Equity When Compared with Long-Term Debt?
    5. CHAPTER 9 Stock Research Checklist—Profit Margin
      1. What Is the Company’s Net Profit Margin for the Last 10 Years? Does the Company Generate a Consistent Upward-Trend Profit Margin or at Least Maintain an Average Profit Margin?
      2. What Is the Company’s Gross Profit Margin for the Last 10 Years? Does it Consistently Grow, or at Least Maintain an Average Rate?
      3. Does the Company Have a High Pretax Profit Margin?
    6. CHAPTER 10 Stock Research Checklist—Capital Investment
      1. What Is the Company’s ROA for the Last 10 Years? Is It Growing Constantly or at Least Maintaining an Average ROA for the Last 10 Years?
      2. Does the Company Have Consistent ROIC Numbers?
      3. Does the Company Need to Spend Large Amounts of Money as a Capital Expenditure to Stay Competitive?
      4. What Is the Company’s Investing Strategy? Is the Company Investing in Its Area of Expertise?
      5. What Percentage of Revenue Is Spent on Research and Development?
    7. CHAPTER 11 Stock Research Checklist—Management
      1. What Is the Company’s Growth Recently? What Plans Does Management Have to Grow the Business?
      2. Does the Company Have Related-Party Transactions with the Family Members or Relatives of the Senior Management or Board of Directors?
      3. Are You Able to Understand the Footnotes of the Company’s Financial Statements?
      4. Is Management Candid in its Performance Reporting?
      5. Is Senior Management Success Oriented?
      6. Do the Financial Numbers on the Company’s Earnings Release Match the Numbers on the Documents That Are Submitted to the SEC (Especially Income Taxes Paid)?
      7. Does Management Deliver What It Promises?
    8. CHAPTER 12 Stock Research Checklist—Dividend
      1. If You Are Buying the Stock for Dividend, Make Sure the Company Pays the Dividend Without Interruption and Has a History of Raising Dividends
      2. What Is the Percentage of Earnings Paid as a Dividend? Is It a Small Percentage of the Revenue?
    9. CHAPTER 13 Stock Research Checklist—Assets
      1. Does the Company Have Any Hidden Assets That Have Been Overlooked by Wall Street?
      2. Does the Company Have a Low Percentage of Net Receivables?
      3. Does the Company Have More Pension Assets than Vested Benefits?
      4. Are Any Large Shareholders or Raiders Working to Uncover the Value of the Under-Valued Asset Plays?
    10. CHAPTER 14 Stock Research Checklist—Inventory
      1. What Is the Inventory Buildup?
    11. CHAPTER 15 Stock Research Checklist—Share Buybacks
      1. Are the Company’s Total Outstanding Shares Decreasing over Time?
      2. Has the Company Bought Back Shares Recently?
      3. Does the Company Have Any Treasury Stock on its Balance Sheet?
      4. Does the Company Have a Retirement of Stock on Its Balance Sheet?
    12. CHAPTER 16 Stock Research Checklist—Insiders
      1. Did an Insider Buy the Stock Recently?
      2. Do the Insiders Own a High Percentage of the Company?
    13. CHAPTER 17 Stock Research Checklist—Institutional
      1. Is the Company not Followed Closely by Wall Street Analysts?
      2. Does the Company Have a Small Percentage of Institutional Ownership?
    14. CHAPTER 18 Stock Research Checklist—Inflation
      1. Is the Company Able to Raise the Price of the Product or Service According to Inflation?
    15. CHAPTER 19 Stock Research Checklist—Cyclical Company
      1. Do You Understand the Relationship of the Company’s Revenue Cycle in Relation to Economic Cycles in a Cyclical Company?
    16. CHAPTER 20 Stock Research Checklist—Turnaround
      1. Has the Company Taken the Following Steps to Turn the Business Around?
    17. CHAPTER 21 Stock Research Checklist—Stock Price
      1. Does the Company Trade at a P/E Ratio That Is Less than Its Growth Rate?
      2. Does the Stock Trade at a Discount to the Company’s Intrinsic Value?
      3. Does the Stock Trade at a Discount to Its Book Value?
      4. Does the Company Have Any Catalysts?
    18. CHAPTER 22 Stock Research Checklist—Infosys
      1. Are You Able to Understand the Business Thoroughly? Is It a Simple Business?
      2. Does the Company Have Any Moat, Which Makes it Very Difficult for Competitors to Penetrate the Company’s Market Share?
      3. What Is the Nature of the Business? Does It Operate in a Non-Exciting Industry?
      4. Is the Company Involved in a Dirty Type of Business?
      5. With National Chain Companies, Was the Company Successful in a Couple of Locations before Expanding Nationally?
      6. Has the Company Dominated in a Particular Segment of the Market?
      7. Is This Company Operating in a Hot Industry?
      8. What Is the Company’s Earnings Growth over the Previous 10 Years? Does It Grow Constantly?
      9. How Does the Company Use Retained Earnings? Are Retained Earnings Reflected in the Stock Price?
      10. What Are the Company’s Owner Earnings for the Last 10 years? Does It Grow Consistently?
      11. What Is the Company’s Recent Earning Momentum? Is It Comparable to Its Long-Term Growth Rate?
      12. Does the Company Have Any One-Time Event That Recently Increased Earnings?
      13. What Is the Company’s “Operating Cash Flow”? Does It Grow at a Constant Rate?
      14. How Has the Business Performed in Previous Recessions?
      15. If a Particular Product’s Success Attracted You to a Company, What Percentage of That Company’s Sales Come from That Product?
      16. Does the Company Have Client Concentration?
      17. Does the Company Have Manageable Debt?
      18. Does the Company Have Manageable Short-Term Debt?
      19. What Is the Company’s Current Ratio?
      20. What Is the Company’s Long-Term Debt? Is It Manageable?
      21. Does the Company Pay Little or No Interest Expense?
      22. Does the Company Have Preferred Stock?
      23. What Is the Company’s ROE for the Last 10 Years? Does It Trend Upward?
      24. Does the Company Have More Equity When Compared with Long-Term Debt?
      25. What Is the Company’s Net Profit Margin for the Last 10 Years? Does the Company Generate a Consistent Upward-Trend Profit Margin or at Least Maintain an Average Profit Margin?
      26. What Is the Company’s Gross Profit Margin for the Last 10 Years? Does It Consistently Grow or at Least Maintain an Average Rate?
      27. Does the Company Have a High Pretax Profit Margin?
      28. What Is the Company’s ROA for the Last 10 Years? Is It Growing Constantly or at Least Maintaining an Average ROA for the Last 10 Years?
      29. Calculate the ROIC for the Last 10 Years. Does the Company Have Consistent ROIC Numbers?
      30. Does the Company Need to Spend Large Amounts of Money as a Capital Expenditure to Stay Competitive?
      31. What Is the Company’s Investing Strategy? Is the Company Investing in Its Area of Expertise?
      32. What Percentage of Revenue Is spent on Research and Development?
      33. What Is the Company’s Growth Recently? What Plans Does Management Have to Grow the Business?
      34. Does the Company Have Related-Party Transactions with the Family Members or Relatives of the Senior Management or Board of Directors?
      35. Are You Able to Understand the Footnotes of the Company’s Financial Statements?
      36. Is Management Candid in Its Performance Reporting?
      37. Is Senior Management Success Oriented?
      38. Do the Financial Numbers on the Company’s Earnings Release Match the Numbers on the Documents That Are Submitted to SEC (Especially Income Taxes Paid)?
      39. Does Management Deliver What It Promises?
      40. If You Are Buying the Stock for Dividend, Does the Company Pay the Dividend Without Interruption and Have a History of Raising Dividends?
      41. What Is the Percentage of Earnings Paid as a Dividend? Is It a Small Percentage of the Revenue?
      42. Does the Company Have Any Hidden Assets That Have Been Overlooked by Wall Street?
      43. Does the Company Have a Low Percentage of Net Receivables?
      44. Does the Company Have More Pension Assets than Vested Benefits?
      45. If You Are Looking at Under-Valued Asset Plays, Are Any Large Shareholders or Raiders Working to Uncover the Value of the Company?
      46. What Is the Inventory Buildup?
      47. Are the Company’s Total Outstanding Shares Decreasing over Time?
      48. Has the Company Bought Back Shares Recently?
      49. Does the Company Have Any Treasury Stock on Its Balance Sheet?
      50. Does the Company Have a Retirement of Stock on Its Balance Sheet?
      51. Did an Insider Buy the Stock Recently?
      52. Do the Insiders Own a High Percentage of the Company?
      53. Is the Company Not Followed Closely by Wall Street Analysts?
      54. Does the Company Have a Small Percentage of Institutional Ownership?
      55. Is the Company Able to Raise the Price of the Product or Service According to Inflation?
      56. If You Are Looking at a Cyclical Stock, Do You Understand the Relationship of the Company’s Revenue Cycle in Relation to Economic Cycles?
      57. If you Are Looking at a Turnaround Companies, Has the Company Taken the Necessary Steps to Turn the Business Around?
      58. Does the Company Trade at a P/E Ratio That Is Less than Its Growth Rate?
      59. Does the Stock Trade at a Discount to the Company’s Intrinsic Value?
      60. Does the Stock Trade at a Discount to Its Book Value?
      61. Does the Company Have Any Catalysts?
    19. CHAPTER 23 Intrinsic Value
      1. Future Earnings
      2. Infosys (INFY)—Owner Income Projection
  8. PART III: INVESTMENT MANAGEMENT
    1. CHAPTER 24 Margin of Safety
    2. CHAPTER 25 Where to Search for Stock Prospects
      1. Value Line
      2. Value Line Investment Survey—Standard Edition
      3. Value Line—Small and Mid-Cap Edition
      4. Magic Formula
      5. The Wall Street Journal
      6. Company Visits
      7. Magazines
      8. Shopping Mall Visits
    3. CHAPTER 26 Portfolio Management
      1. Diversification
      2. Number of Stocks in the Portfolio
      3. Position Sizing
      4. Managing the Portfolio
      5. Diversification with Different Countries
    4. CHAPTER 27 Selling Strategy
    5. CHAPTER 28 Mr. Market and Investor Psychology
      1. Fear
      2. Greed
      3. Emotionless Investing
      4. Media
      5. Market Timing
    6. CHAPTER 29 Risk Management
      1. Systematic Risk
      2. Unsystematic Risk
    7. CHAPTER 30 Options
      1. Calls
      2. Puts
      3. LEAPS
    8. CHAPTER 31 Cigar-Butt
    9. CHAPTER 32 No Shortcut Approach
      1. Identify the Stocks
      2. Research Stocks
      3. Calculate Intrinsic Value
      4. Manage the Portfolio
      5. Monitor the Company’s Portfolio
      6. Make Sell Decisions
    10. CHAPTER 33 Perfect Pitch
  9. Bibliography
  10. About the Author
  11. Index