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hello everybody this is Jason field certified financial education instructor and I want to say good afternoon to all my LinkedIn family Twitter family Facebook family as I said before I told many of you that I would be doing the video to go over some of the things that we taught in class last month and earlier this month and the course that we did are we just completed was how to invest like Warren Buffett and so briefly what I'm going to do is give you some rules and then characteristics to determine how does Warren Buffett investments how does Warren Buffett invest there go hopefully you can learn something and begin to use the same approach first thing you need to know is that Warren Buffett has basically a philosophy in I got this out of a book written by Matthew Crowder who is the CEO of traded University in his book is titled invest like Warren Buffett and part of what I do is in reading information and going through many books and articles I want to find things that make it simple that people can grasp right away and then put it to practice and so he wrote this book and I thought it was an excellent book to get individuals beginners particularly and people who are sort of intermediate investors to start differentiating between how to go into a market how to look at a company and so two things that Warren Buffett does is his mindset is that there are two types of companies there are great companies and then there's everything else and for all of us particularly you beginning investors the goal is to find great companies now remember there are two types of companies a great company and then there's everything else not to say that everything else is bad or horrible but he he believes in the fact that if you really want to start looking at investing you should adopt that mindset there are great companies and then there's everything else and so the first question that you want to ask or that you're gonna ask me as well how do we recognize a great company and so Warren Buffett / Matthew Crowder says there are five ways you can determine what's a great company there are five ways you can determine what's a great company the first one is it has to be a simple business meaning it has to be a great business a great business is simple you should understand what they do you should understand how they make money and so that's your first characteristics of what a great business is you understand it you know what it does you know how they make money second it has to have brand recognition a great business usually has brand recognition for example if I took away the words and showed you the logo for Starbucks Apple or Nike you guys will recognize that right away without the the language or the the words underneath it on the logo you would recognize that and those logos are recognizable worldwide third it has two sales products or services that never go out of style in essence the products or the services that they use will never go out of style and fourth consumers will purchase that product or service again and again they will continue to purchase that product despite the fact that the price may go up which is our fifth characteristics it has to have pricing power meaning people will buy that product over and over again despite the price for the most part so with that said let's look at what makes a great company and then let's look at the characteristics of everything else so as I told you before the first five things you want to know is how to recognize a great business or everything else number one a great business must be simple number two it must have great brand recognition number three it must sell a product or service that will never go out of style number four people will purchase that product or service over and over again and number five it has to have purchasing power meaning despite the fact that the price may go up people will continue to purchase it so that's a great business and once we determine what potentially may be a great business then there are some rules that a great business must have and so we're going to get into that so I picked Intel and I also picked coca-cola these are two companies that you know you you've heard about them you may not necessarily know what until does some of you will some of you may not but for the most part you heard of them and so we're going to go through what makes one of these great and what makes the other one just like everything else again it's not necessarily that it's bad but it may not based on the rules be a great company so the first rule that we are looking for if we believe is a great company is that they must have earnings that will show a smooth upward trend now what I like to use is valued line and you guys can see this here and value line is a service you can use it for free unless you are a person like me where you want more information then eventually you got to pay for it I like value line because it gives me the historical data and it gives me all the numbers and the things that I'm looking for so the first rule is a great business will have earnings that show a smooth upward trend so I'm gonna go to this sheet Intel and I'm gonna go to my far right and I'm gonna look at earnings and now I'm going to look at earnings here and I'm gonna see if it has a smooth upward trend point fifty three point fifty one point 86 well 1.16 1.40 okay we have a dip here point eight six then one point one eight ninety two point seven seven we jump to 205 to thirty nine we're back down to 213 so we're looking at this and the first question is will doesn't have a smooth upward trend well when we look at that the answer to that would be no the second question a great business will show a consistent return on equity above 20% so I'm going to go down to return on equity and you can see that here return on shareholder equity and we're looking for a consistent return above 20% now I don't want you to get fooled by the number here because that's currently again we're going to go back to as far as this that has been reported and we see sixteen point three thirteen point five ten point five twenty three point seven twenty eight point two twenty one then we see 16 21 18 19 19 19 so is this a great business well based on a consistent return of equity of 20 percent the answer to that would be no again not getting confused by the fact that we see 22 point 22 percent here currently third rule a great business will show a consistent return on capital greater than fifteen percent return on capital right above return on equity here and so we're looking at the return of capital 15 12 10 22 24 17 13 17 14 15 and so on so the third question or the third rule does it show a consistent return on capital greater than 15% the answer to that is no now again this is Intel and most of you have heard of Intel so so far we have had we've answered no to the first three rules out of the five the fourth question or fourth rule in you should invest in companies where the long-term debt could be paid off within four years or less using net profits so again when we go to Value Line we're going to go to net profits and we see here that this is roughly eighteen billion dollars so we look at the net profit 18 billion now we're going to look for their long-term debt which is one two three four four rows down and we see that the long-term debt is ten billion so could they pay off that long-term debt within four years the answer to that is yes so basically what you would do is you would multiply the net profit number by four and basically see if you could get rid of this debt or pay it within four years so they can do that the fifth rule a great business pays a dividend or buys back stock and we look here at dividends declared per share we're going to go up to the top here and as you can see there's consistent dividends there so that would be a yes so Intel using our example looking at this sheet is a three out of five there's a three out of five or whether Intel is a great company so I would say no based on the rules now again it's not necessarily that Intel is a bad company but if we're looking at great companies particularly for you investor beginners there might be some other buys or some other moves you can make now let's take a look at coca-cola and what did we say the characteristics of a great business was number one it had to be simple if I asked you all what coca-cola does I don't believe there's anybody that would that would say they have no idea number two does it have great brand recognition you would recognize that shape anywhere in the world does it sell products or services that never go out of style correct well people purchase coke over and over again you better believe it and number five does it have pricing power there are people that if coca-cola went up to $3 a can that would still purchase 12 ounce cans of coca-cola now since we see that it meets that the characteristics of a great business let's see if it follows the rules of a great business remember the first rule is we look for business that will have earnings that show move upward train so we're gonna go here to our far right we're gonna find earnings the third row down and we're gonna look them two thousand one point eight zero two thousand two point eight three and if you look at this number you can see that's a consistent smooth upward trend so first answer yes now remember an Intel that answer was no so here in coca-cola the first rule that's a yes smooth upward trending earnings positive yes number two a great business will show a consistent return on equity above twenty percent so we go down we look at return on shareholder equity reported in 2007 third row from the above the paragraph of that describes cokes business twenty seven point five thirty four twenty seven twenty six twenty eight twenty seven twenty eight thirty thirty four exception so the number we're looking for is a consistent return above twenty percent we see that we see a consistent return at no point in time was it below twenty percent so that's a yes number three the third rule is there a consistent return on total capital greater than fifteen percent well right above Cheryl equity we're looking at return on total capital remember the number we're looking for is consistently above 15 percent 2007 twenty four point two thirty twenty three eighteen and so on so again we're looking we see a number consistently above fifteen percent number four the fourth rule will the long-term because the long-term debt be paid off within four years using the net profits here we see ten ten billion net profit long-term debt roughly 30 billion so we multiply that ten times for forty billion dollars yeah and four years they could pay off their long-term debt does it pay a dividend or buys back stock we scroll up the dividends declared we see here more consistent return of dividends and so all the rules coca-cola meets all the rules all the standards and that answer is a yes so here what we determine is that even though there may be companies that you've heard of if you're a beginning investor it if you even if you're intermediate you may want to really buy to buy am i investing in a great company like coca-cola or am i potentially investing in something that's like everything else again not to say that it's necessarily bad but it may not be a great company this is just a little bit of what we've covered in class and I want to make sure I posted this so you guys could see eventually we'll do some more classes on these kinds of investments and this kind of research and data gathering but just so you have this so you know one of the ways you can find this kind of information is to go to Value Line or if you know the name of the you have the ticker symbol for example you could type in Ko Value Line and you'll see this information will pop up that's an easier way to do it you go here and of course there it is you'll have that information now Value Line may not report all the stocks that you're following you can use information and go to other sites but again for beginning investors I like Value Line because you have the data and you can get started and knowing whether you're investing in a great company or company that's like everything else this is Jason fields certified financial education instructor CEO of the financial promise glad you guys are paying attention look forward to helping you out make sure you follow me at WWE financial promise com you can go here and see all the times where I'm going to be adding classes and you can see videos things that we're going to be consistently teaching and touching upon right now cryptocurrency and Bitcoin is that's that's major a lot of people about that and we just did a radio show that talked about that and so you guys can go to the website you'll see videos that talk about it and give you an introduction to Bitcoin and cryptocurrency talk to you guys later and if you need me feel free to reach out to me anytime talk to you later
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