Phil Town's Four Ms

Whenever we look at buying a stock, we should have Warren Buffett's main philosophy ingrained in our minds. That is....

We want the business to be
(1) one that we can understand,
(2) with favorable long-term prospects,
(3) operated by honest and competent people, and
(4) available at a very attractive price.

This core framework can be easily remembered reading Phil Town's book,
Rule #1. It refers to the four Ms.

1. Does this business have Meaning to you?
2. Does the business have a wide Moat? (duarable competitive advantage)
3. Does the business have great Management?
4. Does the business have a big Margin of Safety?

This is a great book and it reconfirms to me about Buffett's teachings.
It actually teaches you step by step how to buy companies and get a 15% compounded return.

In analyzing the company, the order of importance is

1. Return on Invested Capital (ROIC)
2. Sales growth
3. EPS growth
4. Equity growth
5. Free Cash Flow or Cash growth

With calculating intrinsic value with future EPS growth rate, I liked the idea of using the equity(book value) growth rate vs analysts EPS growth rate(whichever is lower) because what good is a business if earnings grows but you have to take money and put it back into capital expenditures and no surplus cash is generated ?

Warren Buffett says the best proxy for the growth of intrinic value is the growth of equity.