Warren Buffett is often called the world’s most famous investor. Even people who don’t watch markets closely have heard of the “Oracle of Omaha” as he is nicknamed by people in the business.

But what does Buffett look for when investing in a company? One would expect him to do in-depth research, poring over annual reports and financial news but this is not the case. His approach surprisingly simple and clear. Buffett’s first rule is that he must fully understand how a company makes its money. If he cannot explain the business in just a few sentences, he walks away. This means avoiding anything too complicated or confusing. In Buffett’s world, clarity comes first.

The next thing Buffett looks for is what he calls a “moat.” This refers to the lasting advantages that keep competitors at bay and protect a company’s profits. These moats might be a trusted brand, a product people need and use every day, special licences, or simply being able to produce goods or services more cheaply than rivals. The idea is to invest in companies that can keep making money, even as the world changes around them.

He then studies the company’s financial statements to make sure the business is steadily making profits, year after year. He wants to see strong, steady earnings, and prefers companies that earn high returns on the money they invest in their business. Buffett also values “free cash flow,” which is the money left over after all expenses are paid. This cash can be used to expand the business, pay dividends to shareholders, or buy back shares.

A strong balance sheet is also essential. This means the company should not be drowning in debt and must have enough cash or assets to weather tough times. A good business can survive setbacks if its finances are sound.

Management is the fourth big filter. Buffett wants leaders who make smart decisions about where to put the company’s money. The best managers reinvest in the business when it makes sense, return extra cash to shareholders through dividends, and only buy back the company’s own shares when the price is right. He avoids leaders who chase growth at any cost or waste money on flashy projects.

Finally, no matter how wonderful a company is, Buffett will only buy its shares at a fair price. He wants a “margin of safety,” which means he waits for opportunities where the share price is well below what he believes the business is really worth. This gives him a cushion if things do not go as planned.

For ordinary investors, following Buffett’s strategy means picking businesses you truly understand, making sure they have long-term advantages, steady profits, responsible financial habits, smart leadership, and a price that allows some room for error. If you can do that and remain patient, you will be investing with the mindset of Warren Buffett.