Tag: Warren Buffett

Warren Buffett Stock Picks for Beginners

This post will aim to help you find Warren Buffett stock picks for beginners. But first, it will help to have a little background info on who Warren Buffett is and why he is so significant for stock investors.

Warren Buffett is easily one of the most recognized and well-loved stock investors of all time. I believe that it’s because of his incredible track record and his down-to-earth, likeable personality.

Buffett Stocks’ Performance

Speaking of his track record, Buffett’s stock picks (within his Berkshire Hathaway holding company) have experienced an average annual return of 20.0% compared to the S&P 500’s 10.2% gain during the same period of 1965 to 2021.

This is almost twice the SP 500 return! It might not seem that amazing, but when you realize that over 90% of financial advisors fail to beat the S&P 500 for even five years, it makes Warren Buffett’s stock pick performance that much more amazing!

Warren Buffett Stock Picks are Based on Factual Data

I used to think that stock investing was just like gambling at a casino. You just pick a stock and hope that it goes up.

But when I began learning about Warren Buffett’s value investing strategy, I learned that his stock picking method was far from gambling. It was actually based on factual data.

He would find out what the real value of the stock is, then buy when the market mispriced the stock, so he could buy at a bargain price.

This made sense to me and Buffett had the track record to prove that this method actually worked well.

On top of that, he explained complex financial topics in such a common-sense way, that it made it easy for me to visualize. I feel like Warren Buffet could explain stock investing to a 6-year old in a way that the youngster could understand.

In a nutshell, Buffett teaches that ideally, you want to buy a good company at a bargain price.

Pick Stocks by Finding Good Companies at Bargain Prices

In the same way, you want to buy a quality product when it’s on sale. For example, if you typically go to the grocery store and are used to buying a bottle of Coca-Cola at $1, wouldn’t you be even more willing to buy the same bottle of Coca-Cola on sale for $0.50?

That’s what Buffett teaches. You need to make sure that you are buying a good company that you are confident about. Then you want to make sure that you’re buying it at a good price.

If you apply this simple strategy, you will protect yourself from risk, because you didn’t overpay for the stock. Plus, you should experience satisfactory returns, since you bought a good company, which will continue growing profits over the long run.

Now, how do you apply this information to find Warren Buffett stock picks as a beginner stock investor?
Well, there’s a long way and a short way to do this.
First, I’ll share the long way.

How to Analyze Stocks According to Warren Buffet’s Stock-Picking Method

You see, when Mr. Buffett started investing, he didn’t have the luxury of using a computer to do his analysis. Therefore, he had to use the old-fashioned way of finding a good company to invest in.

He did this by reading through the Moody’s Manual, which was a 10,000-some page book that listed all the stocks and their data. Buffett would read through hundreds of pages a day, with a fine-comb approach in order to find good companies to potentially invest in.

He was specifically looking for companies, which were able to show evidence of 5 and 10 years of historical data that was consistently stable and improving.

For example, one criterion he looked for was 10 years of earnings that grew consistently. In other words, if EPS (earnings per share) year over year for a particular company was $1, $1.10, $1.21, $1.33, $1.46, etc. then this showed that the company was growing earnings consistently. This was a good sign.

Below is a real example of the credit card company stock, Visa (V). It shows mostly consistently improving earnings over the 5 and 10 year period. This would be a good potential stock to consider when using Warren Buffett’s stock picking method.

On the other hand, if a company had inconsistent earnings per year of $1, $0.13, -$0.50, $1.40, $1.44, etc., then this would be the type of company that he would avoid.

Below is an actual example of a bank equipment/software company called Diebold Nixdorf. You can see from the chart that this company’s earnings are very inconsistent. Many years actually have negative earnings. This is definitely a company that you would want to avoid since it’s earnings are so inconsistent and unpredictable. Instead, you want to buy companies that have earnings (profits) that you can count on each year to be dependable, improving, and predictable.

In addition to earnings, Buffett looked for this consistently improving historical data in various categories like return on equity, return on invested capital, gross margins, etc.

Once he analyzed a company to find out if it was consistently improving over 5 and 10 years, then he would decide if it was a good company.

After determining if it was a good company, he would still need to find out what the company shares were really worth, so he could decide if it was currently selling at a bargain price.

How to Find Out if a Stock is Selling at a Bargain Price

There are various formulas such as Benjamin Graham’s Intrinsic Value Formula to determine what a stock is really worth, or a stock’s real value. Other methods that Warren Buffett used are called the Discounted Cash Flow valuation method.

We won’t get into the complex details of how to calculate a stocks real value in this post, but just know that it takes some time and effort to calculate a stock’s value using paper and pencil.

After doing these calculations, Buffett would know if he found a good company and what the estimated value of that company’s stock was.
Then he would company the estimated value of the stock, versus the current stock price.

If the stock was currently selling at a lower price than the estimated value, then he might be interested in buying the stock.

As you can imagine, analyzing stocks in this old-fashioned way in order to find Warren Buffett stock picks for beginners, it would take up most of your free time. Buffett has been said to spend 80% of his day on reading and analyzing companies! But this is his passion and what he loves to do. Most of us aren’t wired this way and choose other ways to spend our free time.

Therefore, it would be great if there was a way that we could do the same investigative research to analyze companies in order to find Warren Buffett stock picks for beginners. Imagine if you could do this without having to spend hours each day reading through hundreds of pages of data and spending more time on doing valuation calculations.

You’re in luck, because there is an easier way to find Warren Buffett stock picks in 2022 without using the old-fashioned time-consuming pencil and paper method.

I’ll share an easy way for you to get started.

How to Quickly Find Good Stocks Selling at Bargain Prices

What if you could click a button and immediately have a list of stocks that are analyzed according to Warren Buffett’s value investing criteria to find good companies selling at bargain prices?

It instantly goes through 10 years of historical data for thousands of stocks to determine if each company has consistently improving data for earnings, return on equity, return on invested capital, and the various other criteria that Warren Buffett would analyze.

These stocks would be sorted and ranked with the best companies at the top and the riskier stocks at the bottom. They will have a report card score out of 100 points, according to how well Buffett would consider them to be good companies.

The Analyzer even highlights the best stocks for you, so you can conveniently recognize the best Warren Buffett stock picks in 2022 or for whatever the current date is.

Next, the analyzer tells you if the stock is currently selling at a bargain price.

Best of all, it doesn’t just use one valuation method. Instead, it uses multiple valuation methods. The previously mentioned Discounted Cash Flow valuation method is used, along with a specific Warren Buffett stock valuation (Expected Annual Compounding Rate of Return) method that no other stock analyzer utilizes. In addition, it shows other valuation methods such as Price-Earnings valuation, Residual Income valuation method, Benjamin Graham’s Intrinsic Value, and BTMA’s unique estimated valuations.

Essentially, within one second of pushing a button, you can analyze all the thousands of stocks in the US stock market and be presented with a handful of good companies that are currently selling at bargain prices.

It’s that simple, and this Warren Buffett value investing stock analyzer is called the BTMA Stock Analyzer.

There’s no better way to find Warren Buffett stock picks for beginners or advanced investors.

And for a limited time, you can try this Warren Buffett stock analyzer for free here (no credit card required).

I hope this info is helpful for you,
-Grant

P.S. If you have questions about stock investing, check out our Q&A page, which answers all kinds of common questions that investors have.