Warren Buffett’s 9 Investment Philosophies and Strategies
Warren Buffet is one of the most successful investors in the world. He earned the nickname “Oracle of Omaha”. Here are 9 Warren Buffet-style investment philosophies and strategies that you can emulate. Warren Buffet’s investment style is not as complicated as one might think. The strategy and philosophy he implements surprise new investors after learning about his investment style. Buffet invests in large-scale companies that trade at prices below their intrinsic value so he holds onto these investments as long as they remain large businesses. Buffett’s investment style can make him one of the most successful investors, which can be seen from his investment philosophy and the stocks he chooses for investment.
The following is the investment philosophy and strategy and the stocks chosen for Warren Buffett-style investment as reported by Fool, on Monday (1/4/2024). 9 Warren Buffett-style Investment Philosophies and Strategies Several of Warren Buffett’s investment philosophies can be included in the investment strategy you want to implement, namely:
1. Determine a margin of safety.
Prioritizing a margin of safety is the basis of Buffett’s investment philosophy, with a margin of safety in investments that can help protect investors from financial loss. For example, if a stock is trading at US$10 per share, but the company’s assets are actually worth US$12 per share, then the margin of safety is US$2. The intrinsic value of the asset must be able to prevent the company’s share price from falling excessively. Buffett always invests by paying below the intrinsic value of a company. According to him, a purchase price that is too high for shares of a superior company could eliminate the effects of profitable business development in the next 10 years.
2. Focus on Quality
He looks at the quality of the company, it is better to buy a good company at a reasonable price than to buy a good company at a good price too.
3. Don’t Follow Others
Buffett conveys to new or novice investors, not to buy certain stocks just because they see other people buying them too. This incident is known as fear of missing out (FOMO). Ignoring the crowd and focusing on finding value for yourself is the best way to invest. Buffett also said that the most important quality for an investor is temperament, not intelligence. Temperament is needed so that you don’t like being with or fighting people.
4. Don’t be afraid of market falls and corrections
Usually, if the stock market crashes, get out of the market immediately before prices fall further. However, Buffett considers the falling share value to be an opportunity to buy shares at a discount. Buffett receives a discount on his shares, for him opportunities rarely come, when it rains gold he doesn’t take out his thimble but his bucket.
5. Invest with a Long-Term Mindset
Buffett buys shares because he wants a long-term business and has the mindset that he can own them forever. For him, one of the best investments that many people can make is a set-it-and-forget-it investment, such as an S&P 500 index fund. “If you don’t want to own a stock for 10 years, don’t expect to be able to own it for 10 minutes,” said Warren Buffet.
6. Don’t be afraid to sell if the scenario changes
Warren Buffett wanted to own stocks forever, but reality changed his views. He’s not afraid to sell his investments at a loss, he says the most important thing to do if you’re in a hole is to stop digging.” Decades ago, Buffett once bought a large position in mortgage agency Freddie Mac (FMCC) -16.67%, before the crisis financial crisis that occurred in 2007-2009. Buffett saw that the lender’s management was taking unnecessary risks to the company’s capital and decided to sell it. When the financial crisis hit the United States, it was clear that Buffett had taken the right steps.
7. Learn the Basics of Value investing
Value investing prioritizes paying out a low price for an investment over intrinsic value. Value investors look for and invest in companies whose intrinsic value is greater than the company’s traded share price. Buffett hopes that the market will recognize the full value of undervalued companies, thereby leading to an increase in the company’s share price and profits achieved by value investors. 8. Understanding Compounding Buffett uses compound interest, dividend reinvestment, and the ability to reinvest in order to take advantage of Berkshire’s cooperative cash flow, so that the average annual profit earned by Berkshire since 1964 is 20.1%. This figure is higher than the S&P 500 with a value of 10.5%. Over time, the total return for shareholders was 3,641,613% vs. only 30.209% for the S&P 500. 9. Meticulous and Thinking Buffett said that he insists on spending time every day sitting and thinking. According to him, knowledge will increase over time and some of the success he achieved was the result of the accumulation of investment knowledge he learned.
