On September 29, 2008 a new book will be released called "The Snowball: Warren Buffett and the Business of Life". 

Warren Buffet is a legend. Before he gave almost his entire fortune to charity, Warren Buffet was the richest man in the entire world. In 1962, when Buffet began buying stock in Berkshire Hathaway, a share cost $7.50. Today Buffet is Berkshire' chairman and CEO, and one "Class A" stock is worth more than $118,000.

No doubt that Buffet is a genius and many try to follow his advice to become rich.

But there's a common misconception:

Buffet is NOT a stock trader. 

He does NOT invest in stocks!  

Buffet invests in companies.

Let me explain. Warren Buffet says: "If, when making a stock investment, you're not considering holding it at least ten years, don't waste more than ten minutes considering it."

He continues: "Shares are not mere pieces of paper. They represent part ownership of a business. So, when contemplating an investment, think like a prospective owner."

Based on this, he developed what he calls the Inner Scorecard. He invests in "wonderful businesses" that fulfill - amongst others - the following criteria:

• They have a good return on capital without a lot of debt.
• They are understandable.
• They see their profits in cash flow.
• They have strong franchises and, therefore, freedom to price.
• They don't take a genius to run.
• Their earnings are predictable.
• The management is owner-oriented.

But he goes even further: It is said that once he purchased a company whos owner counted the sheets in rolls of 500-sheet toilet paper to see if he was being cheated (he was). He thought about investing in a company whose owner painted only the side of the building that face the street - to save money.

He acquired the Nebraska Furniture Mart in 1983 because he liked the way ts founder, Rose Blumkin, did business. As a Russian immigrant, he strategy was to undersell the big shots, and she was a merciless negotiator.

Do you get the picture?

Before Warren Buffet invests in a company, his team analysis everything: The financial data, the management (incl. their bios and sometimes even their personal spending habits!), the company's vision, mission and principles, the human resource policy, and much more.

Then he buys enough shares that he can actively influence and change the company's strategies and policies. As he said "Shares represent part ownership of a business".

Warren Buffet is the world's greatest investor. He buys and sells businesses. And he using the companies shares to buy himself part ownership of a business. 

Warren Buffet is NOT a trader.

Have you heard a great story about Warren Buffet? - Leave a comment.