An interview With Keith Ashworth-Lord Author Of Invest In The Best
I know this is a broad question but what are the qualities investors should be looking for when trying to identify the best Buffett-Graham companies?
First and foremost, companies that have an ‘economic moat’. That means something special that keeps them protected from the incursion of competitors seeking to drive down their excess returns to the cost of capital. That something special is often the skill set of the employees, brand pricing power or intellectual property rights. Secondly, I look for businesses with decent growth prospects, that are earning high returns on capital and converting those returns into strong free cash flow. As a consequence, these companies tend to have strong balance sheets. Lastly, I am looking for management that acts with the owner’s eye. Allocation of capital is the foremost task of management and I like to see managers that try to reinvest retained earnings in projects that offer organic growth and high returns on the investment. I also approve of smaller bolt-on acquisitions, where appropriate, but I abhor empire building mega acquisitions. Too often they add no value for shareholders. If managers have a surplus of capital that they are unable to invest profitably, then I want to see it handed back to shareholders.
Based on your research and experience, what would you say is the most common mistake investors make when they try to follow Buffett’s style?
To be a successful investor like Buffett requires very few things. Foremost among them are discipline and patience.