Arguably the most successful investor of the modern age, Warren Buffett is still the chairman and CEO of Berkshire Hathaway at 90 years old, and currently has a net worth of over $100 billion, writes Robert Francis.
While Buffett is famously frugal, eating at McDonald’s for breakfast every day (spending no more than $3.17 each time), and living in the same Omaha home he bought in 1958 for just $31,500, he’s also been practising the art of turning a significant profit for the bulk of his life.
As a self-made billionaire, it’s no surprise that Warren Buffett has crowds of investors committed to following in his footsteps by adopting his investment principles.
So, how can investors make moves like Buffett?
1. He ignores daily moves
Buffett doesn’t pay much attention to the daily ups and downs of the stock market. Instead, he opts to understand price versus value, choosing to invest in companies based on the underlying value of the companies, looking at indicators like revenue, potential growth, assets and strategic direction.
In Berkshire Hathaway’s 2008 annual meeting, Buffett said: “What we see when we look at the stock market is we see thousands and thousands and thousands of companies priced every day. We ignore 99.9 per cent of what we see, although we run our eyes over them. And then every now and then we see something that looks like it’s attractively priced to us as a business.”
2. He finds good companies
He is renowned for finding the right company at the right price, and has been incredibly successful at avoiding value traps.
Value traps happen when investors think they are getting a stock at a discounted price, but in reality, the business has a fundamental flaw that significantly reduces its intrinsic value.
By focusing on quality instead of hype, he’s able to avoid the allure of inexpensive stocks that deserve to be deeply discounted.
Quoted in his annual letter to Berkshire Hathaway shareholders in 1989: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
3. He invests in what he knows and his passions
Buffett famously said “never invest in a business you cannot understand”.
This doesn’t necessarily mean that you need to be an expert in a company, but at least be able to understand what they do, how they’ve been performing and be well informed about the industry it finds itself in.
Investors should always keep up to date and read the news on their favourite companies before making an investment to understand the ins and outs of the business, and whether they have growth potential, before jumping in.
4. He adopts a long-term investment strategy
As far as Buffett is concerned, he’s in it for the long haul.
Adopting a long-term investment strategy, once Buffett buys shares, he rarely sells them. In fact, some of his current investments date back to the 1960s.
If you want to invest like Buffett, it’s wise to consider a long-term mindset, and not worry too heavily on what a company or stock is doing in the short term.
Buffett focuses on companies that have a long-term competitive advantage over the next decade or so.
5. He’s patient and always learning
Buffett understands that investing isn’t about instant gratification, it’s about long-term success.
He’s a big believer in continuously learning throughout life, and reads everything a company has available in order to make the most informed investment decisions possible.
He said: “I remain very big on the idea of reading everything in sight.”
Robert Francis, Australian managing director of global multi-asset investment platform eToro
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Article by Robert Francis on May 10, 2021 at nestegg.com.au