PROTECTED SOURCE SCRIPT
Buffett Investment Scorecard
You want to buy a stock and wonder if Warren Buffett would buy it?
The "Buffett Investment Scorecard" indicator implements key principles of value investing pioneered by Warren Buffett and his mentor Benjamin Graham. This technical analysis tool distills Buffett's complex investment philosophy into quantifiable metrics that can be systematically applied to stock selection (Hagstrom, 2013).
Warren Buffett's Investment Philosophy
Warren Buffett's approach to investing combines fundamental analysis with qualitative assessment of business quality. As detailed in his annual letters to Berkshire Hathaway shareholders, Buffett seeks companies with durable competitive advantages, often referred to as "economic moats" (Buffett, 1996). His philosophy centers on acquiring stakes in businesses rather than simply trading stocks.
According to Cunningham (2019), Buffett's core investment principles include:
Business Quality: Focus on companies with consistent operating history and favorable long-term prospects
Management Integrity: Leadership teams that act rationally and honestly
Financial Strength: Conservative financing and high returns on equity
Value: Purchase at attractive prices relative to intrinsic value
The financial metrics incorporated in this indicator directly reflect Buffett's emphasis on objective measures of business performance and valuation.
Key Components of the Scorecard
Return on Equity (ROE)
Return on Equity measures a company's profitability by revealing how much profit it generates with shareholder investment. Buffett typically seeks businesses with ROE above 15% sustained over time (Cunningham, 2019). As noted by Hagstrom (2013, p.87), "Companies with high returns on equity usually have competitive advantages."
Debt-to-Equity Ratio
Buffett prefers companies with low debt. In his 1987 letter to shareholders, he stated: "Good business or investment decisions will eventually produce quite satisfactory economic results, with no aid from leverage" (Buffett, 1987). The scorecard uses a threshold of 0.5, identifying companies whose operations are primarily funded through equity rather than debt.
Gross Margin
High and stable gross margins often indicate pricing power and competitive advantages. Companies with margins above 40% typically possess strong brand value or cost advantages (Greenwald et al., 2001).
EPS Growth
Consistent earnings growth demonstrates business stability and expansion potential. Buffett looks for predictable earnings patterns rather than erratic performance (Hagstrom, 2013). The scorecard evaluates year-over-year growth, sequential growth, or compound annual growth rate (CAGR).
P/E Ratio
The price-to-earnings ratio helps assess valuation. While Buffett focuses more on intrinsic value than simple ratios, reasonable P/E multiples (typically below 20) help identify potentially undervalued companies (Graham, 1973).
Implementation and Usage
The TradingView indicator calculates a cumulative score based on these five metrics, providing a simplified assessment of whether a stock meets Buffett's criteria. Results are displayed in a color-coded table showing each criterion's status (PASS/FAIL).
For optimal results:
Limitations
While the scorecard provides objective measures aligned with Buffett's philosophy, it cannot capture all nuances of his investment approach. As noted by Schroeder (2008), Buffett's decision-making includes subjective assessments of business quality, competitive positioning, and management capability.
Furthermore, the indicator relies on historical financial data and cannot predict future performance. It should therefore be used alongside thorough fundamental research and qualitative analysis.
References
Buffett, W. (1987). Letter to Berkshire Hathaway Shareholders. Berkshire Hathaway Inc.
Buffett, W. (1996). Letter to Berkshire Hathaway Shareholders. Berkshire Hathaway Inc.
Cunningham, L.A. (2019). The Essays of Warren Buffett: Lessons for Corporate America. Carolina Academic Press.
Graham, B. (1973). The Intelligent Investor. Harper & Row.
Greenwald, B., Kahn, J., Sonkin, P., & van Biema, M. (2001). Value Investing: From Graham to Buffett and Beyond. Wiley Finance.
Hagstrom, R.G. (2013). The Warren Buffett Way. John Wiley & Sons.
Schroeder, A. (2008). The Snowball: Warren Buffett and the Business of Life. Bantam Books.
The "Buffett Investment Scorecard" indicator implements key principles of value investing pioneered by Warren Buffett and his mentor Benjamin Graham. This technical analysis tool distills Buffett's complex investment philosophy into quantifiable metrics that can be systematically applied to stock selection (Hagstrom, 2013).
Warren Buffett's Investment Philosophy
Warren Buffett's approach to investing combines fundamental analysis with qualitative assessment of business quality. As detailed in his annual letters to Berkshire Hathaway shareholders, Buffett seeks companies with durable competitive advantages, often referred to as "economic moats" (Buffett, 1996). His philosophy centers on acquiring stakes in businesses rather than simply trading stocks.
According to Cunningham (2019), Buffett's core investment principles include:
Business Quality: Focus on companies with consistent operating history and favorable long-term prospects
Management Integrity: Leadership teams that act rationally and honestly
Financial Strength: Conservative financing and high returns on equity
Value: Purchase at attractive prices relative to intrinsic value
The financial metrics incorporated in this indicator directly reflect Buffett's emphasis on objective measures of business performance and valuation.
Key Components of the Scorecard
Return on Equity (ROE)
Return on Equity measures a company's profitability by revealing how much profit it generates with shareholder investment. Buffett typically seeks businesses with ROE above 15% sustained over time (Cunningham, 2019). As noted by Hagstrom (2013, p.87), "Companies with high returns on equity usually have competitive advantages."
Debt-to-Equity Ratio
Buffett prefers companies with low debt. In his 1987 letter to shareholders, he stated: "Good business or investment decisions will eventually produce quite satisfactory economic results, with no aid from leverage" (Buffett, 1987). The scorecard uses a threshold of 0.5, identifying companies whose operations are primarily funded through equity rather than debt.
Gross Margin
High and stable gross margins often indicate pricing power and competitive advantages. Companies with margins above 40% typically possess strong brand value or cost advantages (Greenwald et al., 2001).
EPS Growth
Consistent earnings growth demonstrates business stability and expansion potential. Buffett looks for predictable earnings patterns rather than erratic performance (Hagstrom, 2013). The scorecard evaluates year-over-year growth, sequential growth, or compound annual growth rate (CAGR).
P/E Ratio
The price-to-earnings ratio helps assess valuation. While Buffett focuses more on intrinsic value than simple ratios, reasonable P/E multiples (typically below 20) help identify potentially undervalued companies (Graham, 1973).
Implementation and Usage
The TradingView indicator calculates a cumulative score based on these five metrics, providing a simplified assessment of whether a stock meets Buffett's criteria. Results are displayed in a color-coded table showing each criterion's status (PASS/FAIL).
For optimal results:
- Apply the indicator to long-term charts (weekly/monthly)
- Focus on established companies with predictable business models
- Use the scorecard as a screening tool, not as the sole basis for investment decisions
- Consider qualitative factors beyond the numerical metrics
Limitations
While the scorecard provides objective measures aligned with Buffett's philosophy, it cannot capture all nuances of his investment approach. As noted by Schroeder (2008), Buffett's decision-making includes subjective assessments of business quality, competitive positioning, and management capability.
Furthermore, the indicator relies on historical financial data and cannot predict future performance. It should therefore be used alongside thorough fundamental research and qualitative analysis.
References
Buffett, W. (1987). Letter to Berkshire Hathaway Shareholders. Berkshire Hathaway Inc.
Buffett, W. (1996). Letter to Berkshire Hathaway Shareholders. Berkshire Hathaway Inc.
Cunningham, L.A. (2019). The Essays of Warren Buffett: Lessons for Corporate America. Carolina Academic Press.
Graham, B. (1973). The Intelligent Investor. Harper & Row.
Greenwald, B., Kahn, J., Sonkin, P., & van Biema, M. (2001). Value Investing: From Graham to Buffett and Beyond. Wiley Finance.
Hagstrom, R.G. (2013). The Warren Buffett Way. John Wiley & Sons.
Schroeder, A. (2008). The Snowball: Warren Buffett and the Business of Life. Bantam Books.
Skrip dilindungi
Skrip ini diterbitkan sebagai sumber tertutup. Akan tetapi, anda boleh menggunakannya dengan percuma dan tanpa had – ketahui lebih lanjut di sini.
Penafian
Maklumat dan penerbitan adalah tidak dimaksudkan untuk menjadi, dan tidak membentuk, nasihat untuk kewangan, pelaburan, perdagangan dan jenis-jenis lain atau cadangan yang dibekalkan atau disahkan oleh TradingView. Baca dengan lebih lanjut di Terma Penggunaan.
Skrip dilindungi
Skrip ini diterbitkan sebagai sumber tertutup. Akan tetapi, anda boleh menggunakannya dengan percuma dan tanpa had – ketahui lebih lanjut di sini.
Penafian
Maklumat dan penerbitan adalah tidak dimaksudkan untuk menjadi, dan tidak membentuk, nasihat untuk kewangan, pelaburan, perdagangan dan jenis-jenis lain atau cadangan yang dibekalkan atau disahkan oleh TradingView. Baca dengan lebih lanjut di Terma Penggunaan.