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Warren Buffett Investing Strategies  

In order to invest like Warren Buffett one must gain insight into knowledge of the strategies that Warren Buffet uses to analyse the stocks that he buys. It is, only by understanding these strategies that one can gain an insight into how Warren Buffett thinks and then one can begin to emulate his returns.


Despite popular belief, today's investors today actually have a few advantages over Warren Buffet when he first started out. The advantage over

Disclaimer: This site is only  an interpretation of Buffett's investment strategies by the site owner. The site is not in any way connected with Warren Buffett's company and has not received any input from Warren Buffett directly other than what I have read from reading books about Buffett. In addition, I am not responsible for any investment decisions you may decide to make with information provided by this site. Please do not make any investments without doing the appropriate research and consulting a registered investment advisor.

Warren back then is today we have the power of the internet and computers to analyse large amounts of companies in a short amount of time. Computer programs have been written that can mimic Buffett's thought processes and then generate results which investors can use to make investment decisions. This website is not only going to teach you the Warren Buffett strategies of investment success but it is also going to show you how you can apply those strategies to analyse stocks using the power of the internet and computers to generate fast results.

The programs that mimic Warren Buffets thought processes are available free on the internet. You just need to know where they are and how to use them. Once you have that knowledge you will be able to analyse hundreds of stocks in a short amount of time, picking the winners and discarding the losers. Consequently you will build a portfolio that is nothing short of a money making machine. But, first let's get started with the basic principles of Warren Buffets Strategy.

(1) Your not buying a stock you are buying a business.  

Many investors think of stocks as nothing more than ticker symbol on a screen. They look at charts and other technical indicators in order to make a buy or sell decision. Buffett’s strategy is to think of himself as part owner of the business in which he is investing. By thinking this way he is focusing himself to think about the long term prospects of a company. Buffett believes that as long as the company does well long term, then he will do well as an investor. In addition, by taking the long term view he has to analyze the company in greater detail consequently improving the quality of his investment decisions.  

Another way long term thinking gives Warren Buffet an edge as an investor is that he tends to avoid the mistakes many investors make by buying fad stocks. For example imagine an investor who invested in a Hula Hoop stock. The stock would perhaps do well for a while, but ultimately as Hula Hoops fall out of fashion the Hula Hoop stock, with shrinking revenues,will probably fall on hard times and so would the stock price.  

Buffett’s strategy is therefore to buy businesses where he feels he can predict the long term future of the company. Buffett does this by concentrating on simple businesses that do not change over the long term. An example of businesses like this which Buffet himself has invested in are the companies Coca Cola and Gillette. Both companies were started decades ago and the fundamentals of each business haven’t changed much since they were first started. Coke still sells soft drinks, and Gillette still sells various kinds of shaving equipment. A decade from now both businesses will probably still have very similar business models.

(2) Do not over-diversify.

Buffett believes that over-diversification can hurt returns over the long run. He believes that there are very few really good business out there and you should primarily be invested in those rather than a lot of mediocre businesses. He is not suggesting that you put all your eggs in one basket however, but concentrate on a handful of companies say 7 to 10. This is called Focus Investing. These would be businesses that you you understand and believe in, but would also meet Buffett's qualifying principles for investing in a business. It must be added that Buffett also contends that if you are not prepared to put the time and effort needed to practise focus investing to achieve above average returns then over-diversification is an appropriate strategy to pursue.

Buffett's contends that by conducting due diligence research of the stocks you are investing in. Then they would present the least amount of financial risk, with the greatest probability of above average returns. Why then, would you invest in your 15th favourite company? One would rather invest more money into their first or second favourite company. If due diligence has been done extensively then one should feel more comfortable investing in the first 5 favourite companies.

(3) Have a low turnover portfolio

There are many types of investors long term investors and short term investors. Buffett is a long term investor. Buffett believes that the long term investor has many advantages over the short term investor and that short term investing or trading actually hampers returns. The reason for this is short term trading actually increases the amount of taxes that have to be paid on a given portfolio and also increases commissions that have to be paid on a given portfolio.
    Buffet contends that investors should also not try to to time the market, which in practise is very difficult to do and that what makes sense in business also makes sense in stock market investing. An investor should hold on to a small piece of a business such as stocks with same tenacity as one would do if they controlled a large business.Buffett believes by thinking long term and riding out the short term fluctuations in the stock market, the investor will avoid having to pay larger commissions and and heavy taxes on a portfolio turnover, and ultimately benefit from the higher share price and increased dividends from the company.

(4) Analyse the economic fundamentals of the stock's business.
While the stock price is the ultimate indicator of the success or failure of a given investment, Buffet does not focus primarily on the stock price in his decision making. Buffett instead considers the stock price a small component of an investment decision and considers other factors such as the economics of the business or the industry of a business. He contends that if a company is consistently generating bottom line growth, then the long term price will ultimately reflect that.

 

(5) Recognize the Psychological Aspects of Investing.

This means that there is a psychological mindset the very successful investor tends to have. The successful investor tends to focus on the economic conditions of the investing environment rather than making emotional decisions. One example of this that buffett uses is when the stock market crashes. Buffett uses a hamburger analogy. In the long run a buyer of hamburgers would rather pay cheaper prices than more expensive prices. Hence when the stock market crashes this then presents a great buying opportunity for the long term investor. Hence Buffett views market crashes as great buying opportunities.

(6)When an opportunity comes your way pounce.

This is variation of the do not diversify to much theme. When you see a great investing opportunity with a high probability of success then invest a large percentage of your portfolio in it. As great opportunities don't come along very often it important to take advantage of them when they happen.

Disclaimer: I am not responsible for any investment decisions you may decide to make with information provided by this site. Please do not make any investments without consulting a registered investment advisor.