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Buffett looks for businesses with a high return on equity from "summary" of Warren Buffett's Ground Rules by Jeremy C. Miller
Warren Buffett's investment approach centers on seeking out companies that can generate high returns on equity. This key criterion is a fundamental aspect of his strategy when evaluating potential investments. Return on equity is a measure of how effectively a company is utilizing its shareholders' equity to generate profits. Buffett values businesses with a high return on equity because it indicates that the company is efficient in generating profits from the capital invested by shareholders. By focusing on businesses with high returns on equity, Buffett aims to invest in companies that have a strong track record of generating profits and are likely to continue doing so in the future. This approach aligns with his long-term investment philosophy, as companies with high returns on equity are more likely to sustain their profitability over time. Buffett's emphasis on return on equity reflects his preference for businesses that have a competitive advantage or economic moat. Companies with high returns on equity often have a sustainable competitive advantage that allows them to maintain their profitability and outperform their competitors. This competitive advantage can come from factors such as brand strength, economies of scale, or unique intellectual property.- Buffett's focus on businesses with high returns on equity is a cornerstone of his investment strategy. By seeking out companies that can generate strong profits from their shareholders' equity, Buffett aims to invest in businesses with a competitive advantage and a track record of long-term success. This approach reflects his commitment to value investing and his belief in the importance of selecting quality businesses for long-term investment.
