The devotees of legendary American investor
Warren Buffett are numerous and his way of investing
has been copied by many, including Conscious Investing’s
A good low stress starting point, Price
says, is to identify companies with business that
appeal to you. But once you have applied this filter,
it becomes more technical.
An investment valuation indicator you
may then consider is return on equity. People these
days, particularly owners of metropolitan property
investments, understand the concept of equity. It
is the value of your investment after you have subtracted
any debt that you owe (generally the mortgage).
The equity concept is the same in public
If a company is making a 2 to
3 per cent return on equity, then over the medium to long
term this is what you will make as an investor, he says.
However, over the longer term,
the major determinant of returns is the profit a company
earns. From profits come dividends, after all.
Price says some investing strategies
try to capitalise on fluctuations in share price. But fluctuations
are hard to predict and require courage and investment capital
that you can afford to lose if the strategy does not work.
The core of the Buffett style
is to put together a portfolio of companies where you understand
what the business does and are happy with the product or
services it offers.
If you also see the shares delivering
a good and consistent return on equity over time, then that
will flow through into the share price and you will be ahppy
with your share portfolio. A desirable return on equity
is at least 10 per cent and preferably 15 per cent, not
just in the most recent years but also the last three to
The Conscious Investing service
scans every share in the Australian market and identifies
those that fit a Buffett strategy. The ideal scenario
is to develop a portfolio of shares in companies that
have consistent earnings over the medium to long term.
This contrasts with investing in shares that are high
on promises but have little or no earnings. Investing
in such a company would be described as speculating, Price
says, noting that Buffett was conspicuous by his absence
in the United States dotcom sharemarket boom of the late
John Price is CEO of Conscious
Investing. Email firstname.lastname@example.org.