Sunday, 13 September 2009

*****Buffett's shrinking portfolio of the 1980s (2)

The above table shows, Buffett entered the 1980s energetic, ready to dive into a market he saw as woefully underappraised. As the market rose in value without pause, Buffett's conservatism got the better of him. By 1987, he was holding large stakes in just three stocks. When the decade began, Buffett had amassed large positions in 18 different companies.

Warren Buffett does not possess a magic formula for determining when the stock market is grossly overvalued or undervalued. By all accounts, his decisons to plunge into or escape from the marekt are based on several commonsense factors, namely:

1. The relationship between stock yields and bond yields.
2. The rate of climb in the market.
3. Earnings multiples.
4. The state of the economy.
5. The big picture (holistic view of companies, industries, and the entire market).

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