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Why Warren Buffett Can Make Investment Decisions In Minutes

Almost all investors know about the story of Warren Buffett.

The self-made billionaire found his fortune investing in the stock market. If you are an active reader of Warren Buffett’s annual shareholders letters, you would have realised that in his letters, he commented before that he can make millions or billions dollar decision in a matter of minutes. Why is that the case? How can Warren Buffett spot a great investment so easily?

Here might be some of his secrets.

Set very clear boundaries

One clear advantage Buffett has is that he has set very clear investment criteria when it comes to investing. For example, he only invest in businesses which he understands. He looks for great management teams. He also steers clear of businesses with possible catastrophic risk. That means he would not invest in any companies that might have a significant chance of failure.

These boundaries allow him to screen a large number of companies and decide which companies he should avoid and which he can investigate further.

Think sizing

Buffett looks at investments based on his overall portfolio. In later years, when the size of Berkshire Hathaway Inc, Warren Buffett’s holding company, became large, he set specific deal-size minimum limits so that he would only spend his time evaluating investments that would make a meaning impact to his overall portfolio. Today, a US$1.0 billion deal might seem huge for most investor, but compared to the US$338.0 billion market capitalisation of Berkshire Hathaway, Buffett might not even give it a second thought.

Foolish Summary

These are just a couple of ways that Buffett might consider when evaluating a company. Reading through his annual letters is a great way to learn the thinking behind the greatest investor of our time. If you read between the lines, you might just be able to find more secrets of his process.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own any companies mentioned above.