Warren buffet is second in wealth only to Bill Gates. He is a market genius, probably the best-known investment “guru” today. Through his publicly traded holding company, Berkshire Hathaway, Buffett has built an impressive investment track record, as well as a personal fortune that places him consistently on the Forbes list of the wealthiest Americans.
Some academics have discounted Mr Buffett as a statistical outlier. Others have simply stood in awe of his stock-picking skills, which they view as unrepeatable. In my opinion if you were to look up in the dictionary the words of success and investing Mr Buffets name should be there. If you want to learn how to invest in the markets and how to be successful in life and business read everything that he has published and read it over and over again.
Buffett is not just a stock-picker, but a company-buyer. As the Chairman, CEO, and Chief Investment Officer at Berkshire Hathaway, he oversees not only Berkshire’s stock portfolio, but Berkshire’s collection of wholly-owned companies such as Geico and Dairy Queen. Buffett’s investment style is relatively simple and straightforward: he buys large shareholdings in companies whose business he understands. He pursues valuable, high-quality businesses trading at a discount to what he thinks they are worth, and then typically holds onto his investment for a very long time. His favoured investment holding time-frame is ‘forever’. He is a great believer in the type of American companies and brands around which America is built upon such as Coca-Cola, GEICO, Bank of America, Union Pacific Railways and General Electric. Mr Buffet has kept away from investing in technology and thus has considerably failed to benefit from the rise in technology-related stocks during the 1990s, but it also meant he didn’t suffer during the dot-com crash at the turn of the century. All his major investments are based upon US based companies although he is very careful to diversify his holdings across multiple market sectors, choosing the leading businesses in their field.
Unlike many value investors who see only a stock price, Buffett focuses on the business when he invests. While others spend much of their time watching, predicting, and anticipating price changes, Buffett focuses on understanding the business. He is not concerned with the supply and demand intricacies of the stock market. To understand the business, Buffett looks at a variety of factors,
Such as income statements, capital reinvestment requirements, and the cash-generating capabilities of his companies. Any investor would want to invest in a company with good management; managers are to be good allocators of capital, to be open and honest about their company’s performance and prospects, and should have the willingness to go against the herd when necessary. Mr buffet knows this all too well and His experience has taught him that most managers do not do this; most managers only trumpet successes and blindly follow and imitate their peers. In Buffett’s view, that cannot lead to outperformance. This makes a lot of intuitive sense.
Furthermore Mr Buffett focuses on return on equity (ROE) rather than on earnings per share to see whether or not a company has consistently performed well in comparison to other companies in the same industry. He prefers low leverage companies and also looks for high profit margins through reviewing at least 5- 10 years of their financial reports. A company must have a history of 5-10 years of performance which demonstrates the company's ability (or inability) to increase shareholder value. Mr buffet’s most important skill however to determine if a firm is undervalued or not. While he is not opposed to paying a fair price for a good company, he also will not overpay for a…