Invest Like Warren Buffett: A Simple Yet Powerful Philosophy for Investing
By Dr. Steve Sjuggerud, Chairman, Investment U
September 26, 2002: Issue #174
Legendary investor Warren Buffett said yesterday in London that things aren’t that bad right now, and that the stock market is “way out of sync with the economy.”
When the greatest investor on the planet is optimistic, that’s as bullish a sign as you’ll find anywhere.
Warren Buffett became the second wealthiest man in the world (with $36 billion) by investing with one simple principle: He only invests in businesses he understands, and at prices so cheap that there’s plenty of margin for safety if things go wrong.
You, Too, Can Invest Like Buffett… Using His Simple Yet Powerful Philosophy
We’ve touched on these points before… but Warren Buffett has built a fortune based on a few simple ideas that anyone can follow. Let’s break Buffett’s basic investment philosophy down into two parts. You can use it to test your own investment decisions:
1. According to Buffett, you need to invest only in a business you understand… and NOT in companies you hear about at cocktail parties. Bottom line - if you don’t know what the company does then you shouldn’t invest. It’s your money. Take the time to do the homework and research on any company you’re considering investing in. Plenty of free tools are out there on the Internet to help you to this end.
2. Buffett also believes in buying cheap. Admittedly, the idea of “buy low, sell high” is easier said than done. But the point is a valid one: by buying “cheap” on what you invest in, you greatly reduce the chances of losing money. Think about it: you shop around for the best prices on nearly everything you buy. Likewise, why wouldn’t you do the same with your investments?
Warren Buffett’s Take on the Recent Market Declines: “Nothing Frightening”
When asked about the recent stock market declines, Buffett said: “I find nothing frightening about it at all. If I own a good business, I don’t really care whether the markets open tomorrow.”
“I have no idea what business is going to do next month or next year,” Buffett continued. “I don’t think it’s important whether you’re confident about tomorrow or next week.” Warren added that his confidence comes from taking a long-term view of the investment market and the economy.
“If the economy does well over a long period, markets will do well over a long period,” he said. “In the short run, the market’s a voting machine and sometimes people vote very unintelligently. In the long run, it’s a weighing machine and the weight of business and how it does is what affects values over time.”
Buffett in Conclusion
Much has been written about Warren Buffett in the last 20 years. Yet these few paragraphs sum up his simple investing philosophy. If he’d been asked these same basic questions 20 years ago, at the beginning of the great bull market, his answers would have probably been exactly the same. If you’re looking for comfort today, take it in the fact that the greatest investor of our time likes the market forecast and remains bullish.
One of the real keys to successful investing is having your own investment philosophy and sticking with it. If you don’t have one yet, you may want to borrow Warren Buffett’s. From zero to $36 billion in worth, I’d say it’s done okay for him
Good investing,
Steve
Today’s IU Crib Sheet
A final point about what Warren Buffett had to say: Taking a long-term view of the market and the economy is very important. In today’s world of real-time stock quotes, daily market analysis and the likeit’s very easy to become clouded by the news of the day (or the week.) But remember: if you’re investing for the long run you need to take a long-term view of the stock market. Try to avoid making hasty decisions based on the events of a few days or a few weeks.
More on this topic (What's this?)
Investing in Water Stocks (Clean Energy Sector, 4/17/09)
What I learned from Warren Buffett’s Most Recent Letter to Shareholders (Dividend Growth Investor, 2/28/09)
5 Common Warren Buffett Myths Debunked (Stock Trading To Go, 3/16/09)
Read more on Warren Buffett, How To Invest at Wikinvest
http://www.investmentu.com/IUEL/2002/20020926.html
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