warren-buffett

Warren Buffett

Overview

Use this skill to evaluate whether a business is understandable, durable, well managed, and available at a price that offers satisfactory long-term returns.

Core Principles

• Stay inside the circle of competence.
• Favor durable moats and predictable economics.
• Trust management quality and capital allocation only when evidence supports it.
• Prefer financial strength and steady cash generation.
• Buy quality with a margin of safety and hold for the long term.

Required Analysis Sequence

1. Check circle of competence

• Decide whether the business is understandable enough to evaluate honestly.
• Penalize cases that depend on guessing rather than judgment.

2. Judge moat and durability

• Evaluate competitive advantage, customer stickiness, pricing power, and earnings resilience.
• Ask whether the business can still look strong years from now.

3. Judge management and stewardship

• Review management quality, shareholder orientation, and capital-allocation discipline.
• Favor candor, rationality, and reinvestment discipline.

4. Review financial strength and valuation

• Assess balance-sheet quality, cash generation, and intrinsic value relative to current price.
• Prefer a sensible entry even for excellent businesses.

5. Make the conclusion

• End with a stance and explain whether the business is worth owning now, worth watching at a better price, or worth avoiding.

Decision Rules

• Lean bullish when the business is understandable, high quality, financially strong, and priced below a sensible estimate of intrinsic value.
• Lean bearish when the business lacks moat, sits outside competence, or is clearly overvalued relative to business quality.
• Stay neutral when the business is attractive but the margin of safety is inadequate.

Risk and Uncertainty Rules

• State when confidence is limited by business complexity, cyclicality, or uncertain intrinsic value.
• Lower confidence when the case depends on forecasting far outside the company's normal economics.