Money Matters: INVESTOR EDUCATION = INVESTMENT STRATEGIES OF WARREN BUFFET ( POST NO.3)

INVESTOR EDUCATION SERIES

WARREN BUFFET'S

INVESTMENT STRATEGIES

Following are a few more ideas of Warren Buffet on Investment Strategies :

Think independently. Warren Buffet lays great stress on INDEPENDENT THINKING, ANALYSIS AND DECISION. Our decisions must not be based on what others think.
His mentor Ben Graham, whom he adores, says, " you are neither right nor wrong because people agree with you.You're right because your facts and your REASONING are right."
Warren Buffet, is almost allergic to following the crowd. But, at the same time, he does not go mindlessly against the CROWD BEHAVIOUR. There is never ever popular wisdom in stock market. it is always INDEPENDENT WISDOM.
Get your facts, analyze and act. This is the Simple Investment strategy to follow.
Develop a level of competence in certain Industries and stay within your CIRCLE OF COMPETENCE. Do not stray away, outside the circle of your competence. But, by all means, study the industries and businesses within your circle of competence thoroughly.
You may be ruling out 90 percent of businesses in the process. But, you will be making excellent investments in the businesses in the circle of your competence.
Ignore stock MARKET FORECASTS - especially of the short term variety. Instead, concentrate on analyzing the businesses you are in, or want to be in. Most forecasts show a lot of data seemingly supporting them.But, most of them are unaware of the forces acting beyond that data.
Develop an investment strategy that does not depend on the overall movement of the market.
There can be no precision forecasts in a volatile market. Be skeptical about all such forecasts.
Ben Graham taught warren 3 concepts which he follows well. (i) Mr.Market (ii) Margin of Safety, and (iii) stock is a part ownership of a business.
Mr.Market is almost manic-depressive always. He feels euphoric on one day when the prices have risen. He feels depressed on the day when prices have fallen. He comes up with stock quotes every day and with its associated mood. Read the mood of the Mr.Market by all means.Act in ways that take into account this mood. But,do not get swept away in the mood yourself. Never fall under the influence of Mr. Market. Exploit Mr. Market, but do not get into his moods.
Margin of Safety implies - that your stock BUYs are at a price substantially lower than the value of the Business. Warren Buffet talks of buying a Dollar Bill at 40 cents in the stock market. In ensuring this margin of safety, Mr.Market must be your servant rather than your guide.
Margin of safety depends on Intrinsic value, which again depends on factors like variability of interest rates etc and is a subjective estimate to some extent.
Wait for Mr. Market to get depressed sufficiently, so that your Margin of safety arrives. Then, seize your BUYING OPPORTUNITY.
Be fearful when others are greedy and Greedy when others are fearful, says Warren Buffet. People do become greedy, fearful or foolish - and are unpredictable. Do not make investments when stock prices are rising irrationally. The irrational mood swings affect market professionals as much as it affects other investors.
Buy when people are selling - at lowering prices. SELL when people are buying - at rising prices. This is your opportunity.