How To Invest Like Warren Buffet?
Warren Buffet is among the richest persons in the world. Yet, he lives a simple life. He loves to work at this age even. Warren Buffet maybe one of the most successful investors of the 20th century. At one time, his net worth was more than $50 Billion. One day, he astonished the world by donating a large part of this legacy to Bill Gates another billionaire and the world reknowned software developer for helping the poor people in the developing countries.
No doubt, everyone calls Warren Buffet as the, "Sage of Omaha." Now, let's talk about Warren Buffet's investing style. Warren Buffet read the famous seminal treatise on investing, "The Intelligent Investor" by Benjamin Graham while still in his teens. He was already investing in stocks at that age. He became a perfect disciple of the Ben Graham. Initially he worked with him and learned a lot from him.
In 1950s, the idead of a stock having an intrinic value was new and novel. The stock market had started to recover after the close of the Second World War. Warren Buffet practically applied the idea of intrinsic value of a stock in his investing decisions. The problem was there was no set formula for calculating the intrinsic value. Warren Buffet developed his own formula for intrinsic value calculation and applied it before making his stock investing decisions.
He would calculate the intrinsic value of a stock or a business and see if the stock was selling above that value or below that value. If the stock was selling above that value, he would conclude that it is overvalued. If it was selling below that value that meant the stock was undervalued by the market and would eventaully reach its inherent intrinic price. Warren Buffet started investing in such stocks.
His method was the time tested method of buy and hold. Once he bought a sold, he would keep it for many years seldom selling. He sells but not frequently. Some of his investingdecisions were not good. So, he sold those stocks. He thinks that stocks are not just pieces of paper that you can buy and sell anytime but rather are like the soul of a company. When you buy a stock, you are trying to become the owner of that company. So, he would only invest in those companies that had a good management, their business model was solid, they had a product that woul sell in the market for a long time and the potential of growth in the business were there. Warren Buffet is a long term investor.
By investing only in long term, you can help the company achieve its true potential. Once the company achieves its true potential, you also get the reward in the shape of capital appreciation. These days, day trading has become a fad. Day traders just buy and sell stocks thinking of making quick profits in the market. What the market needs is long term investment, so the companies can grow and invest in products that would ultimately create value for the customers. This is what Warren Buffet thinks. Maybe the present stock market crash has been the result of electronic or day trading. No one knows. In a few years, when the experts start to write books on the recent stock market crash and the financial crisis that the world experienced, we will come to know what happened. Warren Buffet has consistently defeated the market by his superiou performance. You too can invest like Warren Buffet!
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