Warren Buffett through the Berkshire Hathaway Group has been consistently one of the best investors in the stock market for many years. With success comes opportunity to learn from him and duplicate the success for you. In the stock market there are multiple methods to come to decision to buy and sell stock and when you find the correct formula for you then it likely will be a combination of more than one investor. A number of years ago, Mary Buffett wrote a book called Buffettology published by Rawson Associates, NY, 1997 in which she outlines the process or techniques which Mr. Buffett uses.

Every year the techniques Mr. Buffett uses becomes easier for the average investor because companies make available the numbers to evaluate companies. Mrs. Buffett’s book offers you how to make more discipline decisions by going through the process Mr. Buffett uses. If you like shopping and getting a bargain, then you will like Mr. Buffett. The 7 steps to becoming more discipline are:

1. Warren will invest long term only in companies whose future earnings he can reasonably predict.
2. He buys these types of companies because they generally have excellent business economics working for them. The free flow of cash and low debt allows the companies to continue to buy new businesses or reinvest in theirs.
3. The excellent business economics made evident by consistently high returns on shareholders’ equity, strong earnings and what Warren calls a consumer monopoly and management functions with the shareholders’ economic interests in mind.
4. The price you pay for a security will determine the return you can expect on your investment. The lower the price, the greater the return. This is one of the keys to helping Warren decide between alternatives.
5. Warren chooses the kind of businesses he would like to be in and then lets the price of the security, and thus the expected rate of return to determine the buy decision.
6. Warren has determined investing at the right price in the right businesses with exceptional economics working in their favor will produce over the long term an annual return of 15% or better.
7. Warren found a way to acquire other people’s money to manage so that he and they could profit from his investing expertise. He did this by starting an investment partnership and later acquiring insurance companies.

The trick is therefore to consistently earn 15% or better compounding rate of return on your investment. What do you say yes to invest in and what do you say no?

Linking to dividend stocks, most investors have asked what do you want from your investments, the answer is more. More at what risk is the next question? If the answer is low risk and higher compounding of your money, then you need to look at dividend stocks because many of them fit into Warren’s pattern. The homework is what price should you buy it at? how long to hold? and what price would you accumulate if the price fell owning to regular market cycles?

There are more questions than answers till the next time – to raising questions.