One of the most successful investors – Warren Buffett

Tue Jan 27, 2009, 12:07 am | 1 Comment

Warren Buffett, regarded as the “Oracle” of Omaha, is widely considered one of the most successful investors of all times. Following the principles of value investing, he has become multi billionaire. He has made his fortune mainly through investing in stocks and buying companies through Berkshire Hathaway.

Investment Style
Warren Buffett has followed, throughout his investment career, some very essential human virtues and has developed them, in his person, to perfection. Because of these values, he has consistently outperformed the market for decades.

• Discipline
  A lot of people read books about investing because they want to learn from gurus. But they ignore the fact that smart investing really requires a lot of hard work and research.

  The true investor has to be really disciplined, bold and fearless and not panicky to be successful financially.

• Patience and Passion
  Most investors don’t necessarily have the patience to wait for the great company with the great underlying economics at the right price. Warren has perfected this quality in himself.

  He recommends to invest for its passion and not entirely for money. So many people are doing it for the money. That’s really not the right reason.

  Warren says if you are doing something you love, you are more likely to put all your effort into it, and that generally equates to making money.

• Value
  Warren Buffett has argued that the essence of value investing is buying stocks at less than their intrinsic value. The discount of the market price to the intrinsic value is considered the “margin of safety”. The intrinsic value is the discounted value of all future distributions.

  His focus has been on “finding an outstanding company at a sensible price” rather than generic companies at a bargain price.

• Be bold
  Most of the time, most businesses are not worth what they are selling for, but on rare occasions the wonderful businesses are almost given away. When that happens, buy boldly, paying no attention to current gloomy economic and stock market forecasts.

• Diversification
  Warren Buffett presents multiple views on diversification. He says diversification is a protection against ignorance.

  However, it makes very little sense for those who know what they are doing

  • Professional with confidence
    For these professionals, he advocates lots of concentration and not too much diversification.

    The professionals understand how the company makes money and they must be able to verbally explain it to folks who invests with them.

  • Beginners
    If you have no particular experience in investing, then participate in total diversification. The economy will do fine over time. Make sure you don’t buy at the wrong price or the wrong time.

    That’s what most people should do, buy a cheap index fund and slowly dollar cost average into it. Don’t try to be smart just by spending an hour a week investing. If you do, you are liable to be really dumb.

  • Experienced
    Diversification doesn’t make sense if you know the hooks and nooks in investing. It’s crazy to put money into your 20′th choice rather than your 1st choice.

    Warren gives an analogy: “If you have a harem of 40 women, you never really get to know any of them well.”

Moral of the story
Every human posses the demeanor that Warren gives so much importance to and has followed all through his investment career. It’s just that we have to bring out those characteristics and follow them not only for investing but in our lives as a whole.

What do you think?

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