Warren Buffett’s investment strategy is simple:

• Buy businesses, not stocks. In other words, think like a business owner, not someone who owns a piece of paper (or these days, a digital trade confirmation).
• Look for companies with competitive advantages that can be maintained, or economic moats. Firms that can successfully fend off competitors have a better chance of increasing intrinsic value over time.
• Focus on long-term intrinsic value, not short-term earnings. What matters is how much cash a company can generate for its owners in the future. Therefore, value companies using a discounted cash flow analysis.
• Demand a margin of safety. Future cash flows are, by their nature, uncertain. To compensate for that uncertainty, always buy companies for less than their intrinsic values.
• Be patient. Investing isn’t about instant gratification; it’s about long-term success.

Warren Buffett is a proponent of value investing, which looks to find stocks that are undervalued compared to their intrinsic value.

Financial metrics like price/book (P/B), price/earnings (P/E), return on equity (ROE) and dividend yield carry the most weight on the Buffett scales. In addition, he seeks out companies that have what he calls “economic moats” – high barriers to entry for a competitor who may wish to invade the market and erode profit margins.

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