Lessons from Warren Buffett’s 40-Year-Old Ad

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In 1983, Warren Buffett sat down to pen his annual letter to Berkshire Hathaway shareholders. Tucked away at the back of the letter was an ad. Specifically, it was a “business wanted” ad. In it, the Oracle of Omaha outlined the type of businesses he and his partner Charlie Munger were seeking to acquire.

The ad listed six characteristics they preferred when looking at a business. The checklist is simple to understand and chock full of wisdom. The concepts will help any investor achieve gains over time – and keep them out of trouble!

Here’s the list:

  1. Large earnings (at least $5 million of after-tax earnings);
  1. Demonstrated consistent earnings power (future projections are of little interest to us, nor are “turn-around” situations);
  1. Businesses earning good returns on equity while employing little or no debt;
  1. Management in place (we can’t supply it);
  1. Simple businesses (if there’s lots of technology, we won’t understand it); and
  1. An offering price (we don’t want to waste our time or that of the seller by talking, even preliminarily, about a transaction when price is unknown).