Why Warren Buffett Advises You To Start With The A’s

When Warren Buffett started his career as an investor, he spent most of his time reading through Moody’s financial manuals, a collection of data on American-listed companies.

In those days, there was no Internet and Moody’s manuals were an invaluable resource to obtain financial data on listed companies.

In an interview in 1993, Buffett gave, in my opinion, his best advice for people who want to start investing:

Excerpt from 1993 interview with Adam Smith on “Money World”

But, with the internet now, we have stock market screens and tonnes of research reports on companies that are available at the click of a mouse. Do we really need to “start with the A’s” anymore?

It’s true that with financial screening tools, we can easily pick out companies that meet any set of financial criteria we like. But, I think that Buffett’s advice still contains immense value.

Focus on the business

What screens focus on are quantitative measurements of how a company is doing or how its stock has moved. But, these tell us only a little, or even nothing, about a company’s business.

I think what matters most when we pick an investment is the business itself. Benjamin Graham famously said that “Investment is most intelligent when it is most businesslike.” We should be looking at companies with business models that we admire and want to be associated with. These are companies that we’re also optimistic about when it comes to the future.

When we find those companies that impress us, then we look at the price and see if we can invest in them at a reasonable or bargain price.

On the other hand, if we are just focusing on the price of a stock and quantitative numbers, it’s often the case that we will end up buying companies with lousy business models that we would never want to be associated with. Cheap rubbish is still rubbish.

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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.