Warren Buffett famously uses four filters when selecting an investment.
- Does he understand the business?
- Does it have a competitive advantage?
- Does it have able and trustworthy management?
- Can it be purchased at an attractive valuation (margin of safety)?
In Amazon.com’s 2014 Letter to Shareholder, Jeff Bezos begins with his own set of criteria for a “dreamy business offering”.
- “Customers love it,
- it can grow to very large size,
- it has strong returns on capital, and
- it’s durable in time – with the potential to endure for decades.”
Bezos writes that, “When you find one of these, don’t just swipe right, get married.”
Bezos makes no mention of valuation.
In my estimation, there are not many businesses that meet these criteria. Finding one a year and buying right would be more than enough.