As some of you may have known, Warren Buffett is one of the Richest Man in the World & one of the Most Successful Investors of all Time. He is also known among many as the “Oracle of Omaha”. Currently, he is the Chairman, CEO & the Largest Shareholder of a Conglomerate called Berkshire Hathaway.
What makes him such a Successful Investor? Warren Buffett describe his Investment Style as 85% Benjamin Graham & 15% Philip Fisher. A little background of both of them :
1. Benjamin Graham is known as the “Godfather of Value Investing” & the author of world famous Security Analysis & The Intelligent Investor.
2. Philip Fisher is a famous Growth Investor that said “The Best Time To Sell a Stock was Almost Never”. You can read more about his Investment Style by reading his book Common Stocks & Uncommon Profits.
Before we move on to Warren Buffett Investment Strategy, have a sip of Tea & Lets Begin.
Warren Buffett Investment Strategy :
1. Look for Long Term Investment.
Whenever he purchase any company stocks, he will always look for the business that have a competitive strategy down the line. His example of “Buy & Hold” Strategy include his purchase of Coca Cola since 1988.
2. Look at the Company Management
Warren Buffett sees the Quality of Company Management plays an important role than profitably for Long Term Investing. He will be looking at the Management Rational Decision when it comes to Reinvesting the Earnings or Distributing the Profits as Dividend back to the Shareholders. Another important factor is, are they honest & willing to admit their mistake?
3. Invest in the Company not the Market or Economy
Whenever Warren Buffett purchase a company stocks, he will always look at the Company Assets, Branding & other Competitive Advantage so they are able to withstand any good or bad economic times.
4. Invest in the Company You Understand
Warren Buffett only Invest in the Company he understand. That is why he used to avoid technology stocks until his recent purchase of Apple stocks. He believes in a company that have a stable product for the next 10-20 years.
5. What is the Company Debt Ratio?
Warren Buffett prefers the Company to have Low Debt/Equity Ratio so they are able to return Higher Profit to Shareholders instead of paying the debt & interest.
6. Buy the Company Stocks When Its On Sale
In August 2011 while Bank of America was coping with financial crisis & other legal issues, Berkshire Hathaway have made a $5 Billion purchase of Bank of America’s Preferred Stocks. This investment comes with Warrants that allows Berkshire the rights to swap its Preferred Stock for 700 Million Shares of Common Stock at $7.14 while the company is trading at $7.00. In 2017, Berkshire have exercised the Warrants & made a quick $12 Billion in a single day.
7. Buy the Company at Intrinsic Value not Market Value
What are the Intrinsic Value of the Company? This is something Warren Buffett will always look at instead of the Market Value of the Company. If the Intrinsic Value of the Company is greater than the Market Value, eventually that Investment will pay off.
Warren Buffett Famous Quotes :
1. “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.”
2. “Ultimately, there’s one investment that supersedes all others: Invest in yourself.”
3. “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”
4. “Nobody buys a farm based on whether they think it’s going to rain next year. They buy it because they think it’s a good investment over 10 or 20 years.”
5. “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No.1.”
6. “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
Looking at Warren Buffett Investment Strategy, we can conclude that his Foundation & Strategy of his Investment is Value Investing. His Investment Strategy of looking for Value Stocks reflects his personal life where he lives a frugal life. It seems easy to mimic his Investment Strategy but it might take years & mistakes to learn about Value Investing. Remember Grasshoppa, Practice Makes Perfect.