In this podcast, Phil and Danielle dive more into what it means for a business to have a durable competitive advantage. They talk about Warren Buffett’s favorite number for finding if a business has a great moat, “Return on Equity.”
Listen on iTunes HERE
Why is Return on Equity (ROE) important? How do you find it? What does it mean? All answered for you.
“We are looking for a wonderful business. A wonderful business has a great competitive advantage, has no debt, a great return on equity and it also grows.”
How do we find this business?
“When you look at a business there’s a language to it. What intimidates people the most about going to foreign lands is that they don’t speak the language.”
When you are a beginning investor Phil keeps it simple when it comes to choosing a business to invest in.
Enjoy the episode!
In Episode 04 You Will Learn:
1. Charlie Munger and Warren Buffett’s checklist of the 4 things you have to know in order to choose a company to put your money in. 1:30
2. Why it’s hard for the best investors in the world to explain what they’re doing, is because they’ve been doing it for so long they don’t realize they are doing it anymore. 7:00
3. Rule #1 Investing can be looked at as a habit or a process. A mental shift of intentions. 10:50
4. The five intrinsic characteristics of a business. 15:45
5. How do I know this business has what I need? Is there some objective way to know that a business has this intrinsic characteristic? 15:57
6. The one secret you need to know to identify if a business has a moat. It is one number. 17:40
7. Phil explains the main difference between return on equity and return on invested capital and the reason Buffett likes to emphasize return on equity over return on invested capital. 26:00
8. Why Rule #1 investors focus on companies that don’t have any debt. 27:30
9. Where and how to find a business’s equity, the income statement, balance sheet, and the cash flow statement. 31:00
10. How to use google to find ROE for a company. 42:00
Resources and People Mentioned in Episode 04
- Charlie Munger video, starts at 6:00
- Adolfo Cambiaso
- Gretchen Rueben’s book “Better Than Before”