Invest in businesses with strong cash flows from "summary" of Buffettology by Mary Buffett,David Clark
When choosing which businesses to invest in, Warren Buffett looks for those with strong cash flows. This is because cash flows are the lifeblood of any business. A company can have all the sales in the world, but if it doesn't generate cash, it won't be able to survive in the long run. Cash flow is what allows a company to pay its bills, invest in growth, and reward shareholders with dividends or share buybacks. Businesses with strong cash flows are able to weather economic downturns better than those without. When times get tough, companies that generate consistent cash are able to stay afloat, while others may be forced to cut costs, lay off employees, or even go out of business. This resilience is a key factor in Buffett's investment strategy. He wants to invest in companies that have a proven track record of generating cash, even in challenging times. Furthermore, businesses with strong cash flows are more likely to be able to reinvest in their own growth. This can lead to increased profits, which in turn can lead to higher stock prices and greater returns for shareholders. By investing in companies with strong cash flows, Buffett is able to benefit from both the stability and growth potential of these businesses. In addition, companies with strong cash flows are often able to return value to shareholders through dividends or share buybacks. When a company generates more cash than it needs for reinvestment, it can choose to reward shareholders by paying out dividends or buying back shares. This can provide a steady stream of income for investors or increase the value of their holdings over time.- Investing in businesses with strong cash flows is a sound strategy for long-term success in the stock market. By focusing on companies that generate consistent cash, investors can benefit from both stability and growth potential, while also enjoying the rewards of shareholder value creation through dividends and share buybacks.
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