Have you ever heard about Warren Buffet?
An American investor, business tycoon, and philanthropist,
He is considered one of the most successful investors in the world and has a net worth of US$71.8 billion..
I looked up positions in his portfolio.
Where there some common trends among many of the assets?
There are a lot of American companies.
There are well known companies, with a well-known brand
There are companies with a long track record,
There are companies in different sectors
There are companies with reoccurring income. Whether it is fees from daily activities, or consumption products people crave for more.
If you listened to the previous episodes where I shared 5 secrets from Peter Lynch’s book One Up on Wall street, do you notice some similarities?
However, I didn’t find any companies with funny or odd names.
Nevertheless, some of the companies with the characteristics I mentioned are Visa, Mastercard, Mondelez, and Cocoa Cola to mention a few. Other well-known names are Kraft Heinz Co, producer of many well-known grocery store products such as the Heinz Ketchup.
What are so good about these companies is that their business model is based on reoccurring income. People who love Coke, will they come back to get another one? Yeah, it is like raving fans. People that enjoy Pepsi will go back to get another Pepsi, but there is no way they will switch to the other brand. It is a love and hate relationship
For visa and Mastercard, they are part of almost everyone’s life. Every time you make a payment with a card, Visa and Mastercard earn a percentage of the amount. They charge fees for every transaction in order to operate the network.
Why does it matter that the company has a business model with reoccurring income? It means their source of income, the revenue stream, is more secure… it creates a better economic situation for the company, given that their assets are well managed, they have control of costs and well invested.
Also, Mr Buffet’s company, Berkshire Hathaway, bought back shares in the company. That signals a belief in themselves
With the characteristics of Buffet’s portfolio, we can see that he is doing proper risk management. The profits he is able to generate on his investments confirm that he knows what he is doing. For example, his investment in apple made him 40 billion American dollars, in just six months during the Corona pandemic.
How does Warren Buffet find these opportunities?
He has a good, fundamental understanding of the investment. He knows what he gets into. He does proper research. He knows key numbers and what the company is all about.
In addition to what we have talked about here, characteristics of a portfolio and risk management, there are several more key factors of an investment you should look into before making your decision, such as the price compared to earnings, past and expected growth and debt. For all these key factors, I have certain benchmarks I look for. These are the criteria I use to screen my investments.