Saturday, May 12, 2012

Warren

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Warren Buffet of Berkshire Hathaway and His Investment Strategy Warren Buffet is arguably the most successful investor of all time. His initial investment of $105,000 in the beginning ultimately grew into a $16 billion dollar fortune made from his trading company, Berkshire Hathaway. If you had invested $10,000 in Berkshire Hathaway when he took over the company in 165, it would be worth $,000,000 today. Warren s stockpicking prowess however, is what he is know for and is also why Berkshire Hathaway has had a returning average of 4% a year for the last three decades. At the age of 6 he is one of the richest men alive, with a net worth of over $7,65,000,000.00, placed only second to Bill Gates. Since Warren has never explicitly stated his strategy, nor has he ever written a book on it, these strategies have been gathered from the Berkshire Hathaway annual reports and interpreted by authors such as Robert Hagstrom, Roger Lewenstein, and Andrew Kilpatrick. Here are the strategies and why or why not you should adopt these practices in your own investment strategy. There are several strategies that Buffet uses to determine if stocks look good and if their worth investing in. First, he always buys at a carefully researched favorable price


He will research the stock and see if it s underpriced or priced right. Second he always likes investing in companies having intrinsic value and a logical pattern of growth. Such as a virtual consumer monopoly based on need (ex. GE) or common acceptance (ex. Coca-Cola) financed tax-free by undistributed earnings. The following are some parts of Warrens investing strategy. · He is a long-term investor. He has said that you should invest in companies that you would feel comfortable with even if the markets closed for a few years and you couldn’t t sell. · He views investing as buying a piece of a business, rather than buying shares of stock. · Buffet considers the following very important return on equity, changes in operating margins, debt levels, capital expenditure needs, and cash flow. · He determines the value of a company by totaling the net cash flows he expects to occur over the life of the company, discounted at the appropriate interest rate (Buffet uses 0 year bond rates), and possibly a premium based on the risk being taken. · He prefers to hold a few great stocks rather than many good stocks. He thinks most investors misunderstand the nature of risk and the need for diversification


With these strategy tips for investing you can decide whether or not you want to incorporate these into your own strategy or not to at all. All of these tips can be useful in evaluating a stock, but remember this is Warren s strategy.


An example is his belief of not investing in companies that he doesn’t know about. One of these sectors has been technology stocks. He missed out on the





Microsoft wave with only a 100 shares bought in the beginning, but that doesn’t mean he s a bad investor, it simply means that he sticks to his strategy and that may be the real key to his investing success





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