Today, we summarized some important of Buffett’s investment rules for readers. Warren Buffett, the worlds greatest ever investor, number two richest man on earth and second to Bill Gate. We study how he uses the commonsense investment and evaluation rules on his stock selection.

Below are some of the rules that he follows:

• Written or mental note of your investment plan with discipline to follow it.
• Be flexible enough to change or evolve your investment strategies when sound judgment and conditions deter.
• Study how sales and earnings of a company derived.
• Focus on your purchase candidate. Understand the firm’s products or services, the company’s position in its industry and their competitors.
• Learn as much as possible about the people managing the business.
• No predictions for the stock market or the economy but base on stock value.
• Sit on the sidelines in a cash position if you can’t find investment opportunity based on your criteria.
• Avoid buying at very high prices relative to value, welling to wait for undervalued stock.
• Define what you don’t know, as well as what you do know and stick to what you know.

{mosgoogle right}Evaluation Rules

• Is the business understandable?
• Are the CEO and top executives focused and capable based on the firm’s previous track record of sales and earnings and how the business run?
• Does management report candidly to shareholders?
• Does the company have top quality, brand name products used repeatedly and high customer loyalty?
• Does the company have a wide competitive edge and barriers to potential competition?
• Is the business generating good owner earnings; free cash flows?
• Does the business have a long-term history of increasing sales and earnings at a favorable growth rate?
• Has the company achieved at least 15% or better return on shareholders equity (ROE)?
• Has the company maintained a favorable profit margin compared with competitors?
• Goals of the business and the plans to achieve them?
• What are the risks of the business?
• Good financial strength with low or manageable debt requirements?
• Is the stock selling at a reasonable price relative to future earnings and price potential?

There are many more to be listed here but I believe these are few important rules that can’t be ignored.

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