Investing Strategy of Warren Buffett
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If you have saved up enough money to make sure you have your emergency fund established and you are looking to start investing in the stock market or maybe you have already been investing for some time in the stock market and looking for an additional advice on how to invest then this will be a perfect article for you.
We will talk about how rich you would be if you followed Warren Buffett’s stock market strategy. Warren Buffett is one of the most successful stock market investors of all time. His strategy of investing has been phenomenal and brought him millions of dollars over time. There are a lot of books, training and educational materials based on his approach to investing which has been highly successful so far.
One of the Buffett’s most famous quotes is:
“Rule number one is to never lose money. Rule number two is never forget rule number one.”
There are a lot of successful financial investors who have built their businesses around this phrase. It is all about minimizing risk and maximizing reward. Buffett’s investing philosophy is really brilliant because it is so simple. Basically he says do not lose money ever. That philosophy has made him one of the richest people on the planet and he is also one of the most successful investors of all time.
One of the best ways to get a feel for just how extraordinary Buffett's investing results have been is to look at how much money you could have made if you would have invested just in Buffett's holding company at the right time. The holding company's name is Berkshire Hathaway. Warren Buffett first took over this holding company Berkshire Hathaway in 1964 and at the time the shares were priced at $19. Buffett could see that textiles were all moving overseas and he basically just used it as a holding company to flow cash that he could invest in other companies. With Warren Buffett at the helm choosing which companies Berkshire invested in, the number on the price tag of this stock rose dramatically today. Those same class A shares of Berkshire are valued at just a little over $300,000 a share. What that means is that if you would have invested a thousand dollars in Berkshire Hathaway back when Buffett took it over in 1964 it would be worth 16 million dollars today.
Many of today's investors obviously were not even alive in 1964 when Berkshire Hathaway was taken over by Buffett or they were not old enough to have money in the market. But thanks to Buffett's investment strategy that does not matter, a thousand dollars invested in Berkshire Hathaway in 1990 would be worth $45,000 today. That equates to an investor multiplying their money by 45 times in less than twenty years which is pretty darn good.
What allows Buffett to deliver such incredibly high returns? His investing success boils down to a strategy for choosing the right companies to buy as well as when to buy them. And another of his quotes perfectly reflects that:
“If the business does well, the stock eventually follows.”
Buffett believes that the price the market puts on a company is often much less than the company's true value. Warren has made a fortune out of finding companies that are priced lower than what they actually should be. He is not a day trader, certainly he is not even an active trader but rather he focuses on buying companies he can hold on to for the long term by waiting patiently until he can buy them on sale.
Warren Buffett always says:
“Our favorite holding period is forever.”
Which also means that if you are not comfortable holding on to a company for at least 10 years then you should not even buy it for 10 minutes. Using these relatively simple principles Warren has been able to single out companies that deliver value over the long term and buy them at a price point that is on sale relative to their true worth. The result of the strategy is seen from how much money an investor could have made if they followed Buffett’s investing over the years.
There are four main things that Buffett really focuses on when it is time to buy a company. He has been talking about these principles for 50 years and he used these same principles to turn a holding company price at $19 into something that is worth over $300,000 a share. Those principles are time-honored and they go all the way back to Ben Graham in the 1930s who taught Buffett how to invest.
They are simple to learn and anyone can use these in their own investing strategy:
You should be capable of understanding the business that you are getting into.
Be sure it is a competitive business, it has a durable intrinsic characteristic that protects it from competition.
Make sure the management has integrity and talent.
Buy it on sale!
These four simple principles Buffett has used over the course of his 60 year career and you are able to achieve returns that greatly outpaced the market just as Buffett has if you follow his advice. Even today if you follow those rules you can emulate the past success of Buffett and Hathaway in your own investments. That is the exciting part of this is you can do it now.
In closing I would like to give you another Buffett’s quote that significantly impacted my personal investing strategy:
“It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Go out there and start doing your research around companies you understand. There are so many opportunities today and you can be a successful investor in the stock market if you invest your time and follow Warren Buffett’s investing strategy.
