Warren Buffett Tenet 7 : Choose Companies with High Profit Margin

What is special in it?

You are investing for making money so it’s very general to invest only in companies which are making Profit. Correct?

Wrong.

There are some companies which known as Start-up. They are Starting their life. There is big potential in the sector but also there are many competitors giving you compitition. It may increase your Cost as you may loose market Share. There is no guarantee who will survive in the cut-throat compitition. What is the operation? Is the management Proven? Many questions. And Warren Buffett don’t like it.

In Start-ups the problem is not with the LOSS. Sometimes the loss is constructive. Like before E-Commerce revolution, the Last mile logistics is not so Good. Shops and many more things were not there. It was all because of Flipkart, Snapdeal who makes tie-up with seller and give them chance to make their business. They also Build Good Infrastructure. But for That They are showing losses. May be there is value generation but it’s difficult to calculate with the help of our regular accounting.

Let’s say Uber. How can you Evaluate them with the help of classical Accounting standard? How to define Gross Merchandising Value as per Classical Account?

Best example is Dot-com time. Yes the Amazon, Google is here but there was many more Companies. Where are they? What happened with the money invested in them?…

Another example is Indian E-Commerce. Flipkart, PayTM and Snapdeal for that matter. But that is not all. There are many.

Basic Rule of thumb here for him is The company is supposed to increase Profits for atleast five years in row.

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About Ashutosh Tilak

Tracking Indian Capital Market since 2010. Finance Student, On this blog I am writing about finance and Investing. You can contact me analystashu@gmail.com or @androidashu & @InsideFinanc on twitter