📖Warren Buffett

Research Before Buying

🌱 Beginner★★★★★

Thorough research before investing is the most reliable form of risk management.

💬

Do your homework before buying anything. Thorough research is the best way to avoid risk.

— 1993 Berkshire Hathaway Letter to Shareholders，1993

🏠 Everyday Analogy

Just like buying a house, you would first consider the location, layout, developer's reputation, and surrounding amenities, rather than making an impulsive purchase simply because the house looks appealing. The same principle applies to stock investment: you must first research the company's business model, profitability, and competitive advantages. Only by doing thorough homework can you avoid stepping into pitfalls.

📖 Core Interpretation

Before investing, you should be able to answer: What does this company do? How does it make money? What is its economic moat? How is its management? And what is it worth?
💎 Key Insight：The time to manage risk is before you invest, not after. Read annual reports, study the competition, understand the business model, analyze the financials. Most investors spend more time researching a new phone purchase than a stock purchase. Buffett's preparation allows him to act with conviction and hold through volatility — because he knows exactly what he owns.

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❓ Why It Matters

Before making an investment, Buffett typically studies a company for many years. Behind swift decisions lies long-term accumulation.

🎯 How to Practice

Research Checklist: Read annual reports, understand the business model, analyze competitors, evaluate management, and calculate intrinsic value.

🎙️ Master's Voice

I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business.
Before buying a company, Buffett often reads 50+ years of annual reports. When considering GEICO, he studied every insurance company's history. When buying Burlington Northern, he understood the railroad industry's economics better than most executives. This exhaustive research is his true edge.

⚔️ Practical Guide

✅ Decision Checklist

  • Have I read at least 5 years of annual reports?
  • Do I understand the industry economics?
  • Have I studied the competitors?
  • Can I write a full investment thesis?

📋 Action Steps

  1. Create a research checklist before any investment
  2. Read annual reports from the last decade
  3. Study the industry's history and cycles
  4. Talk to customers, suppliers, and competitors

🚨 Warning Signs

  • Buying based on headlines or tips
  • Skipping annual report reading
  • Investing without understanding the industry
  • Rushing research due to price movements

⚠️ Common Pitfalls

✕Only buy after thorough research - perfection is unattainable; the key lies in whether critical information is confirmed.
✕Listen to others' research, but you must understand it yourself; otherwise, you won't be able to stay the course during market fluctuations.

📚 Case Studies

1
Investing in Apple (2016)
Spent several years studying Apple's consumer goods attributes.
✨ Outcome：Becoming One of Warren Buffett's Most Successful Investments
2
Do not invest in companies you do not understand. (1993)
Rejecting many high-return opportunities that are not well understood
✨ Outcome：Avoided many pitfalls

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