Warren Buffett's 3 Principles of Choosing a Enterprise

Principle 1 : A company issuing new shares only when its stock price is reasonable or highly valued.


We issue common shares only if we achieve more company value than we drop them.



Berkshire Hathaway 2013 Annual Report, page 105

If companies issue new shares while their stock prices are undervalued, they are actively destroying the value of shareholders.
 If you issue new shares when stock prices are highly valued, it is a great way to reconsider the value of shareholders.
The management may re-invest the funds into proper values or undervalued investments.

source - CNBC



Principle 2 : A company that aims to maximize its inheritable growth in the long term.

We don't measure economic significance or performance on that scale. Measure with weekly growth.


Berkshire Hathaway's 2013 Annual Report, page 103

Any management should base its goals on maximizing the value of its shareholders over a weekly basis. It is no good for shareholders to grow a business by issuing new shares.

Having a 10 percent stake in a $ 1 million company is the same as owning a 1 percent stake in a $ 10 million company.


If a company fails to show its weekly figure and focuses on the overall growth of a company, it is likely to increase its capital by issuing new shares, which dilutes the value of shareholders.

This is a common scene in REIT's investor relations meetings.

source - Real Leaders


Principle 3

For some shareholders, it may be disappointing that our approach to being ' underrated ' is not as good as it is.

However, for long-term investors seeking benefits from corporate growth rather than gaining the return from the mistakes of their rivals, this approach will likely make Berkshire's best bet attractive.



Berkshire Hathaway's 2013 Annual Report, 106 Page


High-valued stocks lead investors astray.
Buffett wants shareholders to share his long-term approach.

Only shareholders who buy and own shares at the right time at the right value realize the long-term inherent growth of the company.

Very highly rated shares make shareholders covet immediate gains and prevent them from acting rationally. Nor is it likely that shareholders will retain it for the long term.