Investing like Warren Buffett
For those of you who are not familiar with the name Warren Buffett where the investment world is concerned, you should educate yourselves as to who the man is and why he is revered among many investors as the “Oracle of Omaha” or the “Sage of Omaha.” Buffett is a businessman, philanthropist, and most significantly, a US investor that is one of the most successful in the entire world.
Additionally, he is the CEO and primary shareholder of Berkshire Hathaway, a conglomerate holding company located in the US Heartland city of Omaha, Nebraska. For the last 40+ years, Berkshire Hathaway shareholders have witnessed and benefited from an annual book value growth of 20.3%. Despite a negative 11.3% return overall on the S&P 500 between 2000 and 1st quarter of 2010, the company produced a 76% return to its investors.
So what has made Warren Buffett so successful in his investment endeavors? Brains, common sense, and timing, to put it simply. The real story is that he originally focused on long-term investments early on in his career. However, he has now shifted his focus in recent years and has started purchasing whole companies. He now owns a wide array of businesses including:
- candy production
- encyclopedias
- home furnishings
- import and distribution of footwear
- jewelry sales
- manufacture and distribution of uniforms
- manufacturing firms
- newspaper publishing
- railroads
- vacuum cleaners
In addition to the above, he also owns several regional utility companies, both electric and gas. Here are 10 tips for how to be successful by investing like Warren Buffett:
1. whenever you purchase even a single share, buy it just like you would the entire company
2. the most recent investment heresy is that market volatility equals risk – it is totally the opposite
3. where growth vs. value is concerned, value must include GARP (growth at a reasonable price)
4. don’t concern yourself with emerging markets, exotica that is difficult to appraise, high technology, leveraged buyouts, and real estate
5. never invest in bad industries because turnarounds typically don’t work
6. look at companies that generate sufficient cash for investing in higher rates of return over longer periods of time
7. just because a stock doubles doesn’t mean that it is time to sell it
8. beware of the “corporate folly” of offering their under-priced stocks for the full value presented by an acquisition candidate
9. long-term bonds are a plague and should be avoided like one
10. if you’re going to be successful as an investor, you have to be a fanatic just like some retail company manager would be
Whenever you start investing, remember that it is a matter of principles and techniques, and Warren Buffett’s are second to none. His track record of success and the fact that as of the date of this article, the man’s net worth is $51 billion should be testament enough as to the 10 tips listed above.