As a self made billionaire, famed investor Warren Buffett has had his share of stock pick winners. His investment holding company Berkshire Hathaway has made many millionaires and if you had bought Berkshire in the sixties, you could have been one too a few times over. However, not many of us could have had the foresight and that’s why many Buffett fans continually track his portfolio movements. One can gain insight on what Buffett is thinking and how he discerns winning stock picks from losers.
Buffett’s best stock picks are ones in which he picks up shares of a well managed company which is undervalued. That might be easier said than done but despite any efficient market theory, as Buffett himself said, if the markets were always efficient, he’d be a bum on the street holding a tin cup. And in spite of Buffett’s continued modest living arrangements, he’s far from a bum on the street. So what are Buffet’s stock tips on the way to riches?
As he had preached in the past, the first rule of investing is never to lose money. This is followed closely by rule number 2 which reinforces the first rule not to lose money. Judging by the war chest of cash that Berkshire Hathaway holds (40 billion), you can tell that the Oracle of Omaha is careful with what goes in his portfolio. The moral of this story is that despite excess cash don’t feel that you have to invest in it right away. Look for the proper investment opportunity.
Another tip for picking winning stocks is to understand the business in which you are investing. Buffett preaches a concentration in holdings. While this might be against standard investing methods of diversification, it actually lessens the risk if it motivates the investor to dig deeply into the business he/she wants to invest.
As a final bit of stock advice, Buffett picks stocks for the long term. Again, using some of his folksy common sense, he sums it up by saying “We don’t get paid for activity, just for being right. As to how long we’ll wait, we’ll wait indefinitely”.
Due to the ease of use of stock trading programs, amateur stock traders are increasing and trying their hand in day trading. However, due to the in and out trading, it is eating up their principal in fees if they don’t make a profit.
Overall, you can see that Buffet’s investment advice is geared towards long term stock picks: he buys good companies in which he understands and ones in which are undervalued. Buffet waits long term until they are in favour again by the stock market.
These are the guiding factors of Buffet’s best stock picks which are easy to understand but it takes a disciplined person to follow.
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