The 7 Most Important Questions to Ask When Investing…

Warren Buffett is fond of saying, “you want to learn from experience, but you want to learn from other people’s experience when you can.”

And when it comes to investing experience, no other investor has more or does it better than the Oracle of Omaha. He’s amassed a fortune of over $50 Billion using strategies he learned from his mentors and from techniques he created himself.

That’s why I listen to him.

Let’s face it, there are thousands of investing strategies out there today and there are even more people who will gladly tell you what you should be doing with your money. Just look at the talking heads on television or the advertising from investment banks, Wall Street and mutual fund companies.

But at the end of the day, two things are clear: 1) Nobody cares more about your money than you do; 2) Warren Buffett doesn’t just tell you how to invest, he shows you by doing exactly what he says and making Billions of dollars doing it.

That’s why you should listen to him too.

And the nice thing about Buffett’s strategies is that they are easy to learn, simple (requiring no advanced mathematical techniques, just plain arithmetic) and, most importantly, they work like gangbusters.

He sums up his philosophy with these words, “I don’t try to jump over seven-foot bars; I look around for one-foot bars that I can step over.”

At a high level, his plan is to:

1) Ask a series of questions to determine if a company is worth further investigation.

2) If so, determine the fundamental strength of the company.

3) If the company is fundamentally solid, determine what price to pay so that he has a built-in margin of safety and maximizes his chances of receiving market-beating returns.

4) Not diversify too broadly. He concentrates his holdings into a few excellent companies. In other words, rather than putting his eggs into too many baskets, he puts them into a few excellent baskets and then watches those baskets carefully.

That’s it. That’s the plan he’s used to make his Billions. He just keeps repeating these steps over and over again.

Of course this begs the question as to why, if investing is so simple, do so many people fail to do it well. Why do so many underperform the markets? Why are their risks so high? Why do they pay outrageous fees to mutual funds and money managers even when their portfolios lose money? Why? Why? Why?

There are answers to these questions, and Buffett hints at one when he says, “there seems to be some perverse human characteristic that likes to make easy things difficult,” but since the point right now is to show you which questions Buffett asks, I’ll simply point you to my book, THE PRAGMATIC INVESTOR, which answers these and more.

Now let’s get back to Buffett.

For anyone who’s read his writings, it’s very clear that he likes to keep things simple. “It’s not necessary to do extraordinary things to get extraordinary results,” he’s said more than once.

Okay, so without further ado, what are the, literally, Million Dollar questions?

1) Is the company free to adjust prices to inflation?

2) Is it likely that a new product or service will come along within the next 10 years and completely wipe out customers’ needs for this product or service?

3) Does the company have a strong moat? A moat is one or more of brand, exclusivity, size or price (for example, does the company have a strong, trusted and recognizable brand, does it have an identifiable consumer monopoly in its region or globally, is it large enough to overcome competitors or can it compete effectively on price for long periods of time?).

4) What does the company do or have that protects it from competition and keeps its customers coming back?

5) If a new competitor came along with one year’s worth of unlimited funds to fight for the company’s customers, how vulnerable would the company’s future be?

6) If the company had to quit advertising or expanding for the next year, how badly would it be hurt? Could it recover after that year and bring customers back?

7) Does the company produce a product or service that has been used by its customers for at least the past 10 years? Will this company’s products be used for the next 10 years?

If the company you’re looking at can make it through these questions, chances are you’re looking at a great company of which Buffett would be proud.

On the other hand, if the company fails to pass through these questions, it’s probably best for you to ignore it and move on.

So there you have it. The seven most important questions you need to ask BEFORE investing your money. If you use them, you’re more likely to profit handsomely. If you don’t, you’re much more likely to fall in with the masses and spin your wheels.

Earlier I mentioned that asking these questions was just 1 of 4 steps Buffett utilizes when evaluating a company. If you’re interested in learning the others, I’ve put together a step-by-step course that shows you exactly how to determine the fundamental strength of a company and how to determine what price to pay for it.

The course is available to you at no charge. It’s short and to the point. It also gives you something most other courses and books don’t – STEP-BY-STEP, easy to follow instructions on exactly what to do.

Just sign up on the right side of this page (if you’re reading this on the blog) or visit the blog at http://www.PragmaticInvestor.com/blog.