（夕注：这位朋友对巴菲特的投资方法总结得完整而精炼。）
The essence of Buffett’s investment process is putting out cash after careful consideration of the facts with the expectation of a reasonable (or better yet, unreasonable) return. He sees this as fundamentally different from speculation where the emphasis is not on what an investment is intrinsically worth but on what the next person will pay for it. Buffett does not think that there is anything wrong with speculating per se; it’s simply a game he chooses not to play. At the center of Buffett’s investment process is the ability to value an asset. To do this requires that you answer only three questions:
１、How certain are you that your investment will produce cash?
２、How much cash will it produce and when will it be paid?
３、What is the risk free interest rate? Buffett uses the yield on long-term treasury bonds for the risk free interest rate.
Buffett teaches that this basic framework is immutable and can be used to value any type of asset – farms, oil royalties, stocks, bonds, lottery tickets and manufacturing plants. An investor can use this framework to evaluate all available assets and then invest in the one that is the cheapest, that is, the one that that offers the most value for the dollars invested.
For an investment grade bond, making this calculation of value is easy, because the bond generates a fixed coupon that is contractually bound to be paid on a fixed schedule. However, when valuing a business, it is the investor’s job to estimate the amount and timing of cash that the business will produce. This is an inherently imprecise process, yet it can be very useful.
Even if an investor can only come up with a range of values for a prospective investment, such a range of values may allow the investor to make a profitable investment if the investment can be purchased at a price below those values. For example, if your best appraisal of a real estate investment was very imprecise, for example, that the property was worth between $1 million and $2 million, that estimate would still be very useful if you could purchase the property for $700,000.
Valuation is not primarily a question of how precise it is, but rather how certain it is, and whether you can purchase the asset cheaper than the lowest reasonable estimate of value. That is why Buffett’s first question is about certainty. Buffett thinks about risk first and will not invest in a business that he does not understand or that is subject to a lot of change because it makes the analysis of value impossible. Buffett once quipped that if he were teaching a class on investing, the final exam would include asking students to value an Internet company. Anyone who tried to answer the question would be flunked. It is simply too hard to value a business that is not producing cash in an industry where it could be obsolete in a year or two.
This is why Buffett looks for companies that have a durable competitive advantage – what Buffett calls a moat – because these types of businesses have predictable cash flows. The best evidence that a moat exists is a business that is profitably doing pretty much the same thing today that it was doing ten years ago, generates high returns on invested capital and is unlikely to succumb to the forces of creative destruction in the foreseeable future. Buffett looks for strong management that will work diligently to deepen the moat or, at least, work hard to minimize the effect of any forces that are eroding it. He also wants a business where management’s interests are aligned with those of shareholders. Even a business with strong predictable cash flows can be a poor investment if management is egregiously compensated or is prone to making poor capital allocation decisions.
If an investment fails to meet his standard of certainty, Buffett is happy to walk away. If he doesn’t understand a business or it is in an industry subject to rapid change, he won’t invest, knowing that to do so would be speculating. Buffett’s investing process is grounded in common sense and uncommon wisdom.
Buffett argues that the approach you should take to investing in public companies through fractional ownership via the stock market is precisely the process you would use if you were looking to purchase a private business in a small town, for example, a gas station or a lawn care business. You would first examine the business and its competitive position to reach a judgment about how stable the business was, whether it could be expected to prosper and grow or decline under the weight of increased competition, changing demographics, or whatever other factors would impact the business’s prospects. This is the certainty factor.
You would then try to estimate how much cash the business would generate over its lifetime, taking fully into account the capital expenditures you would need to make to maintain and grow the business. You would then estimate the timing of the free cash and discount it back by the risk free rate of return to arrive at an estimate of (maximum) value of the business – what Buffett’s call intrinsic value. The final step would be to compare this value to the asking price and make a decision.
Most investors would intuitively do these steps if buying a private business, yet, when many of these same investors consider buying a stock, they spend their time looking a host of factors that having little or nothing to do with the value of the business. They forget that a stock is not a piece of paper but fractional ownership in a business. Over time, the economic success – or failure – of the business will govern the results they achieve.
Finally, unlike many valuation practitioners, Buffett does not use a higher interest rate to compensate for uncertainty in a prospective investment. To him, the thought process is binary: either an investment has the required level of certainty of it does not.This assessment starts with a judgment of whether the business is within your circle of competence and if you can make a reasonably sure assessment of the business’s future prospects after consideration of the facts. Buffett does not think it makes sense to compensate for uncertainty by raising the discount rate in your calculation of intrinsic value.
Buffett’s investing framework can be used to value all assets including the general stock market. The long term driver of the stock market’s total return is corporate profits. Certainly there are other factors at play such as investor sentiment and interest rates, but in the long-term it is the underlying performance of the businesses that make up the stock market that will determine the long-term performance of the stock market. In the long-run, you cannot expect the stock market to return in aggregate results that are greater than those of these underlying businesses.
Buffett’s approach to beating the market is a combination of buying stocks that are cheaper than the general market and that are growing intrinsic value faster the general market. In both cases, Buffett looks to get more value for his investments than he could get by investing those same dollars in an index fund. Wash, rinse, repeat. Buffett has been using this same playbook to consistently trounce the market for over fifty years.
Greg Speicher
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