Warren Buffett is the CEO of Berkshire Hathaway and one of the most successful investors of all time. This article shares some of his core methods and financial indicators for choosing stocks. But before that, here are a few ground rules from the legendary investor.

Warren Buffett’s Ground Rules

• 70/30 Rule - Invest 70% of your money and save 30%
• Investing requires long-term thinking – Buy only something you’d be happy to hold for 10 years
• Don’t try to predict the market – Uncertainty can prove an opportunity for the long-term value buyer
• Focus on the "deep value" of businesses and compare it with something solid – Price is what you pay; value is what you get
• A good investment depends on the industry’s prospects and management’s ability to capture future opportunities
• Pay attention to corporate earnings yield and compare it with bond yields – Wait until the stock price reaches the desired level for a long-term return

Read more: Warren Buffett’s Stock Trading Method and Financial Indicators

4️⃣ Breaking Down Financial Ratios and Their Categories

Financial or accounting ratios turn raw financial data into standardized figures that measure a company’s profitability, efficiency, and its ability to meet financial obligations.

📶 Financial or Accounting Ratios

Financial ratios are based on accounting figures such as revenue, net income, debt, and equity, and are calculated from a company’s financial statements, such as:

• Balance Sheet -An overview of a company’s financial status at a specific point in time
• Income Statement -Shows the company's financial performance (income and earnings) over a period of time
• Cash Flow Statement -Tracks the movements of cash entering and leaving the company over the Income Statement period

These ratios can indicate how well or poorly a company is being managed, but also be used to compare the fair value of different companies or entire industries.

1. When analyzing a specific company, the denominator in a financial ratio might be the share price or the company’s market capitalization. 
2. Market capitalization is calculated by multiplying the share price by the total number of outstanding shares.
3. When analyzing entire industries, the denominator can be the total market capitalization of the industry, calculated by adding up the market caps of all listed companies within that sector.

🔍 Insights Provided by Financial Ratios

Read more: Financial Ratios

Formulating the Doubling, Tripling, and Quadrupling of Trading Capital

The Rule of 72 is a simple way to estimate how long it will take to double your investment. The only thing you need to know is the average annual rate of return.

📌 Key Points

• The Rule of 72 determines how long it will take for an investment to double based on a fixed annual rate

• The only calculation required is to divide the number 72 by the annual rate of return

• For example, at a rate of return of 10% per annum, the initial investment doubles in just over seven years

• Correspondingly, there are also Rules 115 and 144 for the calculation of how long it will take to triple and quadruple your initial investment

Read more: The Rules of 72, 115, 144