Warren Buffett, the CEO of Berkshire Hathaway, is one of the most successful value investors of all time, with a net worth of over US$ 70 billion.
Every investor in the world aspires to be like Warren Buffett. But for that, you need to follow his ‘not so easy’ philosophy. One good thing for you is that you can learn his underwritten principles and apply them in your investment journey. These principles will surely broaden your view on investing.
THINK LIKE WARREN BUFFETT
BUY COMPANIES NOT STOCKS
Warren Buffett has always focused on investing in companies that can be successful over time and that too at a reasonable price. In simple words, for us investing is buying good stocks and for him, it’s identifying companies with durable and competitive advantages in their particular sectors. His main focus is that the company should have good management and reputation. Management that can defend the performance of the company even though the worst recessions. The ownership of the company and its vision towards the company matters the most.
IGNORE DAY TO DAY MARKET MOVEMENTS
According to Warren Buffett, there is no need to take decision for stocks over the day to day swings or any other factor that affects your investment over the short term. He’s much interested in long term potential growth of the company he owns.
Buying the stocks just because you think that they’ll be having a good quarter or because a hot new product is launching next month is tax-inefficient and comes out to be untimed trades, and is definitely not the Buffett’s way.
INVEST IN WHAT YOU KNOW
Warren Buffett has never invested in ALPHABET or AMAZON, just because he is not familiar with their business. This might have cost Buffet to lose the opportunity of investing in Amazon but also saved him from many traps like the dot com bubble collapse. Buffet also said –
“Never invest in a business you cannot understand “
In Buffett’s portfolio, you’ll mostly find stocks related to insurance, banking, utilities, and consumer products just because Buffett understands these sectors very and finds comfort in investing in them.
IDENTIFY STOCK AT RIGHT PRICE
Buffett always waits for the right company to come at the right price so that he can happily invest in that company. He’s one of the value investors. One who invests in those equities which seem to be trading less than their natural value.
‘‘ It’s Far Better To Buy A Wonderful Company At A Fair Price Than A Fair Company At A Wonderful Price ’’
This is one of the greatest pieces of advice given by the investor of Omaha, which is self–explanatory. Price is the most important aspect after the quality of management which is to be considered before investing.
So if you are a beginner & don’t know how to find Intrinsic value or fair value of a company then it’s batter to go with Mutual Funds. For more details, you can check our post “Reason to Invest in Mutual Funds”.
CONTROL YOUR EMOTION
You need to be disciplined to invest like Mr. Buffett. Buffett is able to make sensible investment decisions in all scenarios whereas other investors let their emotions dominate their minds. Chasing the hot stock, or short term trading are some of those emotions. These are tax-inefficient and often end up as untimed trade. Warren Buffett’s frequently quoted advice for investors is to be
“Fearful when others are greedy and greedy when others are fearful.”
Warren buffet is successful today because of his superior intellect. He likes to learn, gain more and more knowledge. When he was 10 years old, he read each and every book on investing in the Omaha library. And he hasn’t stopped since then. Once he even stated that he reads around 400 pages a week. If you want to be like Buffett, you need to be a learning machine that never stops.