I had to revisit the “How to Think Like Warren Buffett site, because I think it’s a great resource for investors everywhere. The ideas behind Buffett’s investments are much more important than their names or even how they performed in the long run. Trying to copy Buffett’s success by investing in what he’s bought recently is about as useful as trying to win the World Series by signing players from the 1975 Cincinnati Reds. What was good once may be on social security now.

Berkshire Hathaway’s success can be traced to the kind of investments they make. People call their investments old-fashioned, centered around companies that make things like food and furniture. That statement might be partially right, but it misses a key concept. Buffett has always preferred investing in companies that he can understand. He wants to know how they make their money, what their market is, what the rational future expectations might be. Older companies just tend to be simpler to understand.

A candy maker pays for sugar, other ingredients, and manufacturing equipment, along with employee wages. Their revenue comes from selling the candy. They will probably also have marketing costs. Add up the revenue and subtract the costs and you’ve got a good idea how much money they make.

Check out the trackback for more information on thinking like Buffett, although I doubt anyone can really get into his mind. I’m told he’s always been a bit of a savant with numbers, with the ability to look at a balance sheet and figure out what numbers look wrong in mere seconds. It was a feat his mentor, Benjamin Graham, was also known for, although not on Buffett’s level. In order to make up for that lack of skill, you’ll have to put in even more hours pouring over the numbers.

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