Warren Buffet’s Value Investing principles

The business the company is in should be simple and understandable.The firm should have a consistent operating history, manifested in operating earnings that are stable and predictable.The firm should be in a business with favorable long term prospects.The managers of the company should be candid. As evidenced by the way he treated his own stockholders, Buffett put a premium on managers he trusted. The managers of the company should be leaders and not followers.The company should have a high return on equity. Buffett emphasizes return on equity (ROE), a key measure of a company's profitability. He prefers to invest in companies where he can confidently forecast future ROEs at least 10 years out. He is particularly fond of firms that don't require a lot of capital, as they tend to produce much higher returns on equity.Consistently Strong Free Cash Flow. Buffett also seeks companies with significant free cash flow. Always mindful of the risks associated with investing, he ensures that his companies have plenty of money left over to invest in their growth after they have paid the bills.Limited Debt. In the 1990s, Buffett bought insurers Geico and General Re because he liked how the companies limited and managed their debt.Buffett also likes the "float" that insurance companies offer. Policyholders pay premiums up front, but claims are paid out later -- providing insurance companies with a steady stream of low-cost cash to play with. Until policyholders collect on their policies or claims, the company can invest those billions in stocks/bonds or other areas, and who better to invest that money than Buffett himself?Margin of Safety. If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety. So, the more vulnerable the business is, assuming you still want to invest in it, the larger margin of safety you'd need.
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