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Buffett looks for businesses with consistent and predictable cash flow from "summary" of Warren Buffett's Ground Rules by Jeremy C. Miller
Warren Buffett's investment strategy is centered around seeking out businesses that exhibit a reliable and steady stream of cash flow. This means that he is not interested in companies that experience wild fluctuations in their earnings from year to year. Instead, he looks for businesses that can consistently generate profits regardless of the broader economic environment. By focusing on companies with predictable cash flow, Buffett is able to minimize the risk of his investments and ensure a steady return over the long term. One of the key reasons why Buffett values consistent cash flow in a business is that it provides a measure of stability and predictability. Companies that have a reliable stream of cash coming in are better equipped to weather economic downturns and other challenges that may arise. This resilience is crucial for Buffett, as he aims to invest in businesses that can withstand the test of time and continue to generate profits year after year. Furthermore, consistent cash flow also allows Buffett to accurately assess the intrinsic value of a business. By examining the company's historical earnings and cash flow data, he can make a more informed judgment about its future prospects. This analytical approach helps Buffett to identify businesses that are undervalued by the market and have the potential for long-term growth.- Buffett's emphasis on consistent and predictable cash flow reflects his disciplined and methodical approach to investing. Rather than chasing after short-term gains or speculating on volatile stocks, he focuses on building a portfolio of solid businesses that can deliver steady returns over time. This strategy has been a cornerstone of Buffett's success as an investor, enabling him to build a vast fortune through patient and prudent decision-making.
