Money Matters: INVESTOR EDUCATION = INVESTMENT STRATEGIES OF WARREN BUFFET

INVESTOR EDUCATION SERIES

WARREN BUFFET'S

INVESTMENT STRATEGIES

Warren Buffet followed Investment principles that are simple, easy to understand and easy to follow: I will be reverting back to Warren Buffet again and again in this Blog, as warren is admittedly the most successful investor of our time.Here are some of his ideas.

Choose simplicity over complexity; Do not try complex mathematical models for your investment decisions. The soundness of your Investment Decision must be self evident.Look for long lasting companies with predictable Business models. If you don't understand the business of a company, do not buy its shares. This means that, one must buy stock of companies under strong, solid, ethical Managements.
Make your own Investment Decisions.You are capable of investing successfully without listening to brokers, stock market pundits and other Professionals. A broker's Incomes depends on how many times you SELL and BUY, and not how wisely you do it. Your frequent ACTIVITY and not its final RESULT is the breadwinner for Brokers and professionals. Understand this clearly. Make your own search for companies whose intrinsic worth is much more than their share price. Sooner or later, the Share price will rise up to meet the intrinsic worth. This is called Value Investing. Never ever make an investment decision merely because somebody told you to do.
For Value Investing, you need some basic knowledge of Accounting and Finance and market functioning. Based on them, you must assemble your own detailed logic for buying a firm's shares, preferably in writing.
Practice a sound temperament to succeed.You can't afford to become euphoric when stock prices are galloping upwards. You can't become depressed when they are moving southwards. You must face negative events especially, very calmly. Do not invest in shares if it would cause you to panic if the price falls by 50 percent.
Buy great businesses and hold on to them for years.Do not just hop in and hop out of stocks. More often, sticking with a great company for a longer time pays you much more than hopping in and out of glaring, current hot stocks.
This requires Patience. Think of a 10 year Investment rather than a 10 minute or 10 days investment. If you are not prepared to hold the stock for a decade, don't buy it in the first place.Patience is part of the Game. How long will you wait. For Buffet, the answer is -"if we are in the right place, we'll wait indefinitely."
Buffet prefers clearly understandable businesses, with favourable long term prospects. They must be operated by honest and competent people. They must be available at an attractive price. Search for certainty in uncertain markets - for businesses which will outperform others over the long run.Evaluate their fundamentals like profits, cash flows and other efficiency parameters that determine its long term health. Use all authentic reports available for the purpose. Internet is a great hep for the purpose.
Search out for Businesses which are either monopolies, or sectors in which it is difficult for others to enter.Existing companies are like protected fortresses in those sectors and are likely to do well.
Today's High Tech becomes tomorrow's Low Tech. Competition enters soon and reduces profit margins. In the long run, it is the solid, low-tech, everyone-needs type of products and services which will rule. Look for such products and services and companies that make them.If technology change is TOO FREQUENT in a sector, it is difficult to say which company will stay at the TOP after 10 years.
Should you DIVERSIFY or should you CONCENTRATE your investments? Choose no more than 10 good companies to invest. Warren does not prefer too much diversification. When you have chosen the best businesses, in good sectors, better concentrate your investments in them rather than dilute them into less profitable companies.
Warren believes that there are times when doing nothing is a sign of INVESTING BRILLIANCE. Frequent trading shows unnecessary over-activity and is likely to result in much less profits than sticking to your well planned investments and doing nothing thereafter. Do not mistake activity for achievement. There are too many hidden costs in hyperactive trading.
If you are a value investor, do not be overly interested in minute-to-minute, or even day-to-day stock prices, of even those stocks which are in your Portfolio. Even monthly movements are of less importance. These ups and downs of stock price are much less important for a value investor. What is of real interest is - how the Business is performing. Keep your eyes on the BUSINESS PERFORMANCE and not on STOCK PRICE PERFORMANCE.
KEEP ALL EYES ON VALUE AND NOT ON PRICE.