WARREN BUFFET: INVESTMENT APPROACH AND BEST QUOTES

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Learning from the gurus has always been a significant part of the Indian tradition. In fact, one of the most famous Indian mystics, Kabir went on to say that the position of the guru is even higher than that of God. So I thought that the objective of this blog would not be completely fulfilled if I do not include the wisdom from these great men who I give all the credit for my success as an investor. So, for the next few weeks, I’ll publish articles giving you an idea about the investment approach of the best investors of the world. Each of the investment gurus I talk about in this series of articles has had a significant influence on my investment knowledge, attitude, and approach. Each of them holds a special place in the investment world and their opinions and teaching are held highly in the investment community.

READ: PETER LYNCH: INVESTMENT APPROACH AND BEST QUOTES

Today, I would write about write about one of the stock guru – Warren Buffett.

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Warren Buffett is arguably the most successful investor of all times. He serves as the chairman and CEO of his investment company Berkshire Hathaway and is one of the richest people in the world. He is a protégé of Benjamin Graham who has had a big influence on Buffett’s investment philosophy. He is primarily a value investor but also keeps the principles of growth investing in mind while making investment decisions. Buffett is a notable philanthropist, having pledged to give away 99 percent of his fortune to philanthropic causes.

Now, let us have a brief look at the major points that summarizes the investment approach of Warren Buffett.

Investment Approach

  1. Like any value investor, Buffett never likes to overpay for his investments.
  2. Buffett does not believe in diversification. He believes that risk comes from not knowing what one is doing. If investments are made after proper due diligence, then there is no need to invest in a lot of stocks.
  3. He is a big believer in investing in quality stocks for a long period of time, and if possible, remain invested forever.
  4. Warren Buffett is credited with the invention of the idea of moats i.e. brilliant competitive advantages enjoyed by a company.
  5. Buffett believes in investing only in businesses which he understands. He stays away from businesses having complicated business models.
  6. Buffett loves businesses which can increase prices of its products at will without having any significant impact on the demand for the products.

Quotes, I believe, are books in miniature. Let’s look at some of the most popular quotes by Warren Buffett.

Best Quotes

  1. Rule No. 1: Never lose money. Rule No. 2: Never forget rule No.1.
  2. Price is what you pay. Value is what you get.
  3. Risk comes from not knowing what you are doing.
  4. It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.
  5. Our favorite holding period is forever.
  6. An investor should act as though he had a lifetime decision card with just twenty punches on it.
  7. Diversification is protection against ignorance. It makes little sense if you know what you are doing.
  8. If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.

Books

Warren Buffett has never written a book on investing and the main source of information about his investment philosophy and approach are his annual letters to the shareholders of his company Berkshire Hathaway. However, there are many good books that have been written that helps us understand the investment approach of Warren Buffett.

#1. The Warren Buffet Way

The Warren Buffett Way offers investors their first in-depth look at the innovative investment and business strategies behind the spectacular success of living legend Warren E. Buffett. Tracing Warren Buffett’s career from the beginning, Robert G. Hagstrom, Jr., tells us exactly how, starting with an initial investment of only $100, Buffett built a business empire worth $19.4 billion. Offers a close-up look at Buffett’s highly successful investment theories and strategies; identifies the types of businesses Buffett now finds most attractive, and which ones he avoids; and based on the author’s ten-year monitoring of Buffett’s numerous shrewd investments and ventures.

Get it on Google Play

#2. The Essays of Warren Buffett

Experienced readers of Warren Buffett’s letters to the shareholders of Berkshire Hathaway Inc. have gained an enormously valuable informal education. The letters distill in plain words all the basic principles of sound business practices.

#3. The Warren Buffett CEO

The first book to reveal the investment and management strategies of the Berkshire Hathaway all-star management team. Much has been written about Warren Buffett and his investment philosophy; little has been made public about the inside management of Berkshire Hathaway. With a market cap exceeding 100 billion , Berkshire Hathaway has a market value surpassing many icons of American business such as Dell, AT&T, Disney, Ford, Gillette, American Express, and GM. Drawing on his personal experiences as well as those of Berkshire’s chief executives, officers, and directors interviewed for this book, Berkshire insider Robert P. Miles provides a unique look at the Berkshire Hathaway culture and its management principles.

#4. Dear Mr. Buffett: What an Investor Learns 1269 Miles from Wall Street

Janet Tavakoli takes you into the world of Warren Buffett by way of the recent mortgage meltdown. In correspondence and discussion with him over 2 years, they both saw the writing on the wall, made clear by the implosion of Bear Stearns. Tavakoli, in clear and engaging prose, explains how the credit mess happened beginning with the mortgage lending Ponzi schemes funded by investment banks, the Fed bailout and its impact on the dollar. Through her narrative, we hear from Warren Buffett and learn how his enduring principles caused him to see the mess that was coming well in advance and kept him and his investors well out of the way.

#5. The Snowball: Warren Buffett and the Business of Life

Here is THE book recounting the life and times of one of the most respected men in the world, Warren Buffett. The legendary Omaha investor has never written a memoir, but now he has allowed one writer, Alice Schroeder, unprecedented access to explore directly with him and with those closest to him his work, opinions, struggles, triumphs, follies, and wisdom. The result is the personally revealing and complete biography of the man known everywhere as “The Oracle of Omaha.” Although the media track him constantly, Buffett himself has never told his full life story. His reality is private, especially by celebrity standards. Indeed, while the homespun persona that the public sees is true as far as it goes, it goes only so far. Warren Buffett is an array of paradoxes. He set out to prove that nice guys can finish first. Over the years he treated his investors as partners, acted as their steward, and championed honesty as an investor, CEO, board member, essayist, and speaker. At the same time he became the world’s richest man, all from the modest Omaha headquarters of his company Berkshire Hathaway. None of this fits the term “simple.” When Alice Schroeder met Warren Buffett she was an insurance industry analyst and a gifted writer known for her keen perception and business acumen. Her writings on finance impressed him, and as she came to know him she realized that while much had been written on the subject of his investing style, no one had moved beyond that to explore his larger philosophy, which is bound up in a complex personality and the details of his life. Out of this came his decision to cooperate with her on the book about himself that he would never write. Never before has Buffett spent countless hours responding to a writer’s questions, talking, giving complete access to his wife, children, friends, and business associates—opening his files, recalling his childhood. It was an act of courage, as The Snowball makes immensely clear. Being human, his own life, like most lives, has been a mix of strengths and frailties. Yet notable though his wealth may be, Buffett’s legacy will not be his ranking on the scorecard of wealth; it will be his principles and ideas that have enriched people’s lives. This book tells you why Warren Buffett is the most fascinating American success story of our time.

Stay tuned. I’ll be posting a similar article about another investment wizard in a few days.

Meanwhile, do let me know about the investment guru you admire the most in the comments section below.

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