WHAT THE WISE MEN DID.

There is an old investment saying that goes, “Bull markets are born in time of despair, grow with doubt, mature in optimism, and collapse amidst euphoria.”
As an investor, is the best time to enter the market during despair, optimism or euphoria?
Simple investment logic tells us that, the best time to enter the market is when the prices are low and exit when the prices are at peak. In theory this is possible but impossible in practice simply because one can not tell when the market is at its low and when it is at its peak. Trying to time the market is not only a waste of time but also a waste of opportunity.
So what is the best way to enter the market? Noted investment legend Warren Buffett says the best way to invest is by focus investing.
Focus investment is the use of fundamentals to chose your stocks and the holding them for a long term. The success of focus investment is unquestionable as warrens success says it all.
Fundamentals form the foundations of anything, choosing the stocks to invest in, entails the critical use of basic investment rules or investment fundamentals to choose your stocks. The use of fundamentals being basic is rather simple to understand compared to the use of technical analysis. If an investor’s intention is to hold wealth creating stocks rather than short term money makers then the use of fundamentals is necessary.
What then are the fundamentals of choosing a stock?
Warren Buffett has given some of his proven ways of choosing a stock by the use of fundamentals.

Buy a business not a stock.
Warren believes that a business person and an investor want one and the same thing and that is to make profits. While buying a stock one should analyze the business by looking at the following, business tenets.
Simplicity and understandability. The business should be simple and understandable other wise it will be difficult to figure out how the business makes profit.
Consistent history. A company with a good track record gives an assurance of it ability to make profits in future as past events can be used to predict future outcomes.
A business must have favorable long term prospects. As the value of your stock grows based on the future of the business one should look at it prospects. A good example is companies that make camera film rolls, in the advent of digital camera revolution.
In any business management holds the key to its success, any serious investor can not afford to over look management. For this Warren has come up with some management tenets for an in-depth management evaluation.

Management rationality. Rational mangers invest cash in projects that earn returns in excess of the cost of capital. If such projects are not available, they will return the money to shareholders. Irrational mangers, on the other hand, look for ways to invest surplus funds, somewhat unmindful of the profitability. This results in returns which are less than the cost of capital.
Managerial candor. The openness with which management deals with the shareholders is very important. Dose management out rightly lay it plans to the shareholders. A frank management helps the shareholders in decision making.
Resistance to institutional imperative. Most management succumbs to the institutional imperative. They mindlessly imitate the behavior of others and tend to build big empires, often hurting the shareholders in the process. An important future of a good management is the ability to resist this “institutional imperative” and its unwavering commitment to shareholders.
Finance forms a very important part of any business. Most brilliant ideas have not materialized due to lack of finance. On the other hand bad financial management has seen many a great business fail. Finance should form a major part of your investment decision.
Return on equity. Investors often judge a company’s annual performance by its earnings per share. For Buffett, a better measure of a company’s annual performance is its return on equity. This measure takes into account the companies growing equity base.
Profit margin. High profit margins reflect a strong business as well as a firm’s managerial determination to control costs.
Owner earnings. Buffett warns investors that the accounting earnings per share are the starting point for determining the economic value of a business, not the ending point. Most novice investors use cash flow to measure value though this is one of the proven methods of measuring value of a share it might not reflect the true picture in all stocks, especially in manufacturing companies. Instead of cash flow Buffett prefers to use what he calls “owner earnings” which is a company’s net income plus depreciation, depletion, and amortization, less the amount of capital expenditure and any additional working capital that might be needed.
Though Buffett admits that this is not mathematically precise because calculating the future capital expenditure often requires rough estimates,
To justify this he quotes noted economist Keynes “I would rather be vaguely right than precisely wrong.”
When it comes to buying a share investors are usually faced with two questions.
Is this company a good value? Is this the right time to buy the share, is the price favorable.
· A strong advocate of the discounted cash flow method, Buffett values a business by discounting it estimated cash flow at a suitable discount rate. That is calculating the current value of a business first by, estimating the total earnings that will likely occur over the life of the life of a business, and then discounting that total backward to today. It should be noted that Buffett uses owner earnings for this calculation.
· Purchase at a significant discount. Buffet believes in purchasing the business when the price is substantially lower than its value. This should not be confused with timing the market, as timing the market is impossible. But establishing the value of a share and finding if it price is lower than its value is very possible.


I have seen many people jump into the stock market without researching. They base there investments on hearsay tips, wanting to make quick money just because the next door neighbor made a million on the stock market the other day. To this kind of people, I will tell them what the wise men said. Nothing is for free you must work for whatever you want to gain. For those looking for a short cut to millions, the same way those millions might come is the same way they will go, so be patient invest don’t speculate.
Take some time and effort to research before making an investment for your small effort might be worth millions.