Hagstrom's Buffett Approach to Analyzing a Stock as a Business
by Wayne A. Thorp, CFA
Warren Buffett captured headlines recently when his company, Berkshire Hathaway, announced that it was acquiring Burlington Northern Santa Fe Railway in a deal valued at approximately $44 billion. Buffett described the deal, which was his largest ever, as an “all-in wager on the economic future of the United States.”
Whether you are looking to acquire an entire company, or just purchase shares for your investment portfolio, a fundamental approach to investing begins first with an understanding of the value of a business. You can then determine if the current stock price presents an attractive buying opportunity.
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A number of books have been written over the years that attempt to interpret Buffett’s investing philosophy and methodology. In his book “The Essential Buffett: Timeless Principles for the New Economy” (2002, John Wiley & Sons), Robert Hagstrom argues that it is possible to duplicate Warren Buffett’s approach within your personal area of expertise.
Hagstrom’s Buffett Overview
Hagstrom presents Warren Buffett’s approach through a series of questions that should be explored with any potential investment. The approach suggests that you:
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