Brief Summary of the Warren Buffett Way of Investing
The Warren Buffett Way of Investing has become a must have book for investors, as it has brought much financial success to many. Here is a summarized version of some of Warren Buffett's principles:
1. Always be frugal First of all, one advantage of being frugal with your money is that you will have more of it to invest. Also, if you live this way in your own life you will demand this quality of your managers. Warren Buffett is strongly opposed to corporate waste. If you are living frugally you won't need a lot of money coming in fast to support your lifestyle. If you aren't in a big hurry to get money you will be able to think more clearly about your timing when it comes to buying and selling stocks.
2. Stick to what you are familiar with One of the basic rules of the Warren Buffett Way of Investing is that you should avoid a company if you do not understand the product or how it brings in money. This is why he avoided the technology companies, which turned out to be a good move.
3. Do not depend on the reassurance of others You will never be able to invest like Warren Buffett if you constantly need people telling you that you are right in your decisions. He makes money by purchasing unpopular stocks. You won't see anyone on TV telling you what a great choice you made when you purchase these kinds of stocks.
4. Buy companies at a low cost This is the main essence of the Warren Buffett Way of investing. He doesn't really put much focus on the earnings per share. He focuses more on the return on equity as well as solid operating margins and either no debt or a reasonable amount at most. What Buffett is looking for is if a company generates plenty of cash, whether they invest it properly and in what form they return it to shareholders (he prefers dividends or buybacks). Buffett looks back over five years or more and wants to see an operating history that is consistent in nature. Startup companies are not his thing. Additionally, he likes to look at how a company handles various market conditions, rather than only when it's smooth sailing.
5. Buy Big Most people like to protect themselves against risk by spreading out their investments. The Warren Buffett Way of Investing is to pile into an investment that he finds to be worthwhile.
6. Hold on forever Warren Buffett says that his favorite holding period is forever. He says you should only invest in companies that will be able to perform for decades. You have to be able to think for yourself, and not go along with the crowd when everyone else is selling. Don't panic when your stocks decline. If you can't handle the pressure, Buffett says you should not be in the stock market.
This is simply a brief summary of the Warren Buffett Way of Investing, however if you follow the principles in his book you will be likely to enjoy some of the financial benefits that this guru has in his investment career.
Article Source: FxTradingStock.com
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by: Joe Maldonado
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Date: Fri, 11 Mar 2011
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