6. “Always Buy Undervalued Stocks”

In order to check the fundamental strength of a company, Buffett calculates its intrinsic value in order to find out if it’s overvalued or undervalued. Undervalued stocks are those whose market price is below its intrinsic value. Buffett refers to buying of undervalued stocks as the process of maintaining “margin of safety.’ Intrinsic value of stocks refers to the current value of all future cash flows connected with the chosen stock. Buffett highlights 3 key areas when finding out intrinsic value – “no reasonable or no debt at all,” operating margin and return on equity. Buffett advises to look at these numbers for the past 5 years.