沃倫·巴菲特之路

i am now reading this book, and would like to summarize the principles of investing from business perspective presented.

I. Corporate

1. simple: the business must be simple and be fully understood in every aspect (profit, expense, cash flow, labor relationship, price elasticity, capital need, capital allocation, etc);
2. consistent & proved business model: avoid business which always change;
   
3. economic franchise/consumer monopoly: strong demand, no close substitutes, ability to raise price against inflation;

II. Management

1. rational capital allocation: invest only if return > cost of capital, otherwise pay dividend or repurchase, avoid diworsification;
2. honest: admit to errors, act to the best interest of shareholders;
3. able to act against the crowd: do not follow the crowd without independent thinking;

III. Finance

1. return to shareholders: measured by (earning before unusual, infrequent or extra-ordinary items + depreciation - capital expenditure) / equity;
2. low leverage ratios: less loan borrowings;
3. cost control: high profit margins;
   
4. value creation: increase in market value > increase in retained earnings in long run;
   

IV. Market

1. corporate value: measured by discounted cash flow method, avoid business with unpredictable cash flow to ensure accuracy, and use long term interest rate as discount rate;
2. safety margin: buy only when market price much cheaper than corporate value.