Warren Buffett is believed to be a very farsighted, contrarian investor who takes stock market investing extremely seriously and doesn’t follow the fashion (Doesn’t buy stocks advertised on TV).
Warren Buffett does research, a lot of research on the balance sheets of many companies, he may research as many as 30 balance sheets and company histories yet only invest in one.
Investing Beliefs Of Warren Buffett
1. He believes in company earnings and not in price/earnings ratios – I agree!
2. He makes emotionless decisions and he is not influenced by public opinion – I agree! People make unbelievable, emotionally driven investing decisions.
3. He doesn’t believe in diversification – Warren Buffett believes that as long as you find a stock of true value, further diversification over more stocks is pointless – I disagree! You can never be 100% sure of any stock, and Mr Buffett has suffered big losses because of this (Though I suspect he used these losses to offset his tax liabilities – he therefore didn’t incur any real loss).
4. He believes you should never lose money, it’s his most important rule – Well, it’s a hard thing to achieve in practice.
Despite all his farsightedness and investment savvy there’s no way that Warren Buffett can detect an accounting scandal, such that of Enron. So I still insist that you should never invest all your money in any single stock.
It is evident that Warren Buffett does lose millions here and there, in bad stock market investment decisions, but he uses these losses to lessen his multi million dollar tax bill. He also donates to the poor within the tax deduction law, which a great thing. I am sure, I would rather donate $10 million to the poor and needy than pay $10 million in taxes where most of the money will disappear into fat cats’ pockets.
Having read much of Mr Buffett’s advice, it is very apparent that he has a good grasp of basic numerical calculations that are somewhat obscure to most investors, he understands compound interest, profit margin and capital growth extremely well.
For example if given 2 equal quality companies, namely A and B, and given the following scenario:
Given a fixed $100,000 to invest, and certain stock growth, which stock would you rather buy, the one moving higher $4 or the one moving higher $10?
Let’s see:
- $100,000 invested in stock A will buy you 250,000 shares, selling later at $4.4 will give you $1.1 Million.
- $100,000 invested in stock B will buy you 25,000 shares, selling later at $14 will give you $350,000.
The fact is that stock B will have to rise up to $44 to make as much money as stock B makes from $0.4 to $4.4!
It’s quite easy to miss this fact, and chances are you will get excited about the larger stock price movement.
Stock Market Investing Strategies and Stock Market Speculation by..
Scott Smith
Investing The Stock Market © 2008 – 2010
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Hi Scott,
Warren Buffett is a visionary, who works with a simple philosophy.
I watched a video recently about how he runs his multi-billion dollar company, to my surprise he had very few staff and overheads.
Maybe that’s a lesson in itself!
Cheers,
Cade
I do believe that Warren Buffett does not invest in the stock market directly. Please correct me if I’m wrong here, but he invests directly in companies, privately negotiating the price he will pay for a share of stock which he pays directly to the company and he does not purchase shares on the open stock market like the rest of us.