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Pre-filtered Buffett Screen
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Well I couldn’t do stock screening videos without looking at the legendary Warren Buffett’s stock screener criteria.
So Today I will show you how to use a stock screener like Buffett. I’ll have a list of criteria you can use yourself and I’ll do a demonstration to show you.
Ok, now let’s talk about what Buffett looks for in an investment.
And that’s the 4 M’s, Meaning, Moat, Management, Margin of Safety.
Meaning - This one is simple. This isn’t about a particular metric. This is about your understanding of the business. Do you actually understand the industry and the business itself.
Moat -
The Moat is the term used for how strong and wide is the barrier to entry for competition.
A strong brand can be a moat, like Apple. Or a recipe like Kentucky Fried Chicken. So try to think of how hard it would be to compete against these companies. The harder, the better from an investing point of view.
Management -
It’s best when management have a stake in the company, as they have the same interests as the shareholders. Good management can make or break the business.
We can look at financial metrics to help us see if management are making good decisions.
Margin of Safety -
A company has an intrinsic value or fair value. And we want to invest in companies below this value.
The reason we want a margin of safety is because predicting the future is impossible. But you can give yourself an advantage by having a big margin of safety.
The bigger the discount to fair value, the bigger the margin of safety.
I have an intrinsic value calculator in the description below. It is free and it will help you find the intrinsic value of an investment.
How do we follow Buffett?
I think that the 4M’s are all common sense and I can see why Buffett would look for these things.
But it is extremely difficult for others to follow he’s principles.
It takes a lot of time reading and analysing companies and industries. Reading through financial statements and annual reports to judge the business and the management team.
Buffett’s Criteria
Simple, understandable business
Consistent earnings
Good return on equity
Little debt
Good management
$2 billion in size or bigger. (now this is because he is managing huge amounts of money) Back when he was younger, this wasn’t an issue. But now it is. We probably don’t need to worry about this one as much.
Avoid turnarounds and hostile takeovers. (something that he does now, but not early in his career)
Buffett’s Stock Screen
Market cap greater than $2 billion
EPS growth past 5 years positive
Operating margin better than industry average (or 10%)
Net operating margin better than industry average (or 10%)
ROE over 15%
Current debt to equity better than current industry average (or less than 0.5)
Price to free cash flow under 15 (this metric will give us good value)
If you liked this video make sure to subscribe so you don’t miss future videos. Next week I’ll look at the Peter Lynch Screen. I’m excited for that one!!
I hope you enjoyed the Warren Buffett Stock Screener and I’ll see you in the next video.
