Naturally, I gravitated toward the investment/money section (as I always do…) and looked over the titles, attempting to grasp some inspiration that would further develop my knowledge of the topic. I saw all the common names: Suze Orman, Robert Kiyosaki, Donald Trump, and of course, Warren Buffett. Today was a Buffett day. The book of choice: “The Warren Buffett Way“, by Robert Hagstrom.
The title certainly seemed fitting since Warren Buffett really compares to no one. His track record is nearly flawless and always appears to beat the market. How does he do it time and time again? Well, he looks at the stock market from a completely different angle than the rest of us. Learn about investing the Warren Buffett way.
If someone were to ask me some important factors when investing in the market, I would have given the typical “intelligent” answer. I would first take a general view of the economy and decide if the overall market was on the rise. I would then take a look at the numbers – the financial statements. Were they a sound company? What is their debt-to-equity ratio? What’s the P/E ratio? And finally, I would take a look at the charts. Hopefully, the stock has just taken its “double-dip” and is back on the rise…
According to this book, Warren Buffett wouldn’t concern himself with any of these things. I think he would have laughed in my face (but in a nice way, because that’s just the kind of guy he is).
Here’s the Warren Buffett Way
1) Turn off the stock market – viewing the Dow Jones Industrial Average is going to tell you nothing about the future prosperity of one particular stock. Ditch the market averages.
2) Don’t worry about the economy – there are plenty of companies that are flourishing in this poor economy, and there are some companies that flop when the economy has never looked better! The general economic reports most likely do not directly impact the stock that you are reviewing.
3) Buy a business, not a stock – Day traders sit behind their computers and study the numbers and the charts. It seems high-tech and we assume they make millions, but in reality, many of them lose, and lose big. Their problem? They are buying stocks, not businesses.
Warren Buffett does not buy a stock that he would not feel comfortable owning for the next 10 years. He looks for businesses that are:
- run by honest managers
- have good company economics (their product will thrive)
- a deal (the current price is lower than the perceived value)
4) Manage a Portfolio of Businesses – when you purchase the stock, consider yourself a business owner, not just a stock renter. Don’t be afraid to go to those shareholder meetings and gain a great knowledge in the company in which you are investing. “Wide diversification is only necessary when you don’t know what you’re doing.” — said by the man himself.
I don’t think I’ll forget these tips too quickly. The 4 keys above are so simple, but when put to practice, they have created one of the richest men in the world!
Will you start investing “The Warren Buffett Way?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.