Warren Buffet’s Approach

Warren Buffet’s Approach

Warren Edward Buffet is ranked as one of the wealthiest men and one of the world’s most influential people. He is one of the most successful stock market investors in history. He acquired his fortune through a unique investment savvy. This approach earned his the nickname the Oracle of Omaha.

What is his secret though? Actually, rather than trying to play the market, Buffet try to view the investment of a stock in the same way as investment in a business:

Investment is long term: Investor must aim for profits over the long term rather than for immediate gains. You should take a long-term approach by investing in sound business over a long period of time, instead of following everyday market.

Investment must be made at a good price: Investors generally try to negotiate the best price possible. Invest only when the market offers an attractive price following sharp falls in price, for example. But do it with the margin of safety.

Invest in sound business over a long period of time, don’t follow the schizophrenic trends of the market. Illustration: © Mega Jorgensen (Elena). An artwork at UQAM university in Montreal.

Your business must be well managed: With a business, investors consider the approach and experience of the managers. Adopt a similar approach when looking at investing in a stock. Examine the management’s approach to areas such as investing profits back into the business.

The business attempts to avoid debt: Investor must consider all the risks associated with large debts. An analogous approach must be taken to investing in stocks. Therefore, does not invest in companies with too much debt (leverage), as these situations can affect rates and reduce cash flow.

Competitive edge: Invest in competitive brands, such as Apple or Google, rather than “commodity” companies that are not distinguishable from competitors except on price. The well-known brands provide something unique and therefore have a competitive advantage.

High returns: Investors aim for reasonable return on investment. Look always at the rate of return on investments in stocks. A rate of return means that if you invest one hundred dollars, and your share prices increases to $110 a year later, you achieve a ten percent rate of return. Look for companies that have higher returns to invest in.