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Warren Buffett Investment Strategy

Wednesday, December 17th 2014. | Making Extra Money

Warren Buffett Investment Strategy

Warren Buffett Investment Strategy has reached mythical proportions. Warren Buffett is considered to be one of the greatest investors of our time. His success in investment has turned numerous heads as to his secret in the investment world. Under his leadership alone, He has ushered his company Berkshire Hathaway Inc. to becoming worth more than 300 billion dollars.

Buffett’s net worth alone is valued at more than 70 billion dollars. The buffet was ranked as the world’s wealthiest person in 2008 and 2012 Times named him as one of the world’s influential people. Warren Buffet began his career as the Chairman and CEO of Berkshire Hathaway Inc. in 1970. This was the beginning of his legacy as one of the most successful stock investors in the world. Currently, many investors chase Buffett’s equity investments each quarter, and many lessons can be learned by following and understanding the oracle of Buffett’s career.
Buffett’s philosophy to Investment

Warren’s opinion supports the Benjamin Graham School of value investing. Buffett uses investing tenets to guide him in making his investing decisions. These 12 investment principles are categorized in different areas specifically business, management, financial measures and value. Buffett’s strategies are to understand and may seem like clichés, but they are tough to implement in one’s investment decisions. Here are Buffett’s principles of investment:

1. Never follow the daily fluctuations of the stock market.

The market only exists to facilitate the investor in buying and selling of stock, not to set values. An investor needs not the market’s validation for the purchase of shares. An Investor will run into trouble whenever he tries to make the market a predictor of future stock prices.

2. Don’t worry about or try and worry about the general economy

The best approach is to acquire a business which has a realistic opportunity to progress without regard to whether the overall economy is expanding or contracting. A business which can profit in any economic environment is precious.

3. Buy a business, not its stock

Treat a stock purchase as if you were buying the entire business, the investor should consider the company’s operations, whether its long-term prospects are favorable and whether competent and honest people operate it and if it is available at attractive price.
The decision to acquire a business should be based the following tenets:

Business Tenets

1-Is the business straight forward, understandable and simple from your perspective as an investor?
2- Is the company’s operating history consistent?
3- Does the business have favorable long-term prospects?

Management Tenets

1. Is management rational?

2. Is management honest and reliable with its shareholders?

Financial Tenets

Investors should not focus on the earnings per share; they should concentrate on the return on equity instead.
Investors should search for companies with a high-profit margin because it means that their products are of high demand.
Investors should calculate the “Owner earnings.”
Has the company created at least one extra dollar of market value for every dollar of retained earnings?

Management Tenets

The value of the business should be put into consideration.
Can the company currently be purchased at a significant discount to its value?
Manage the business portfolio

Intelligent investing should not be based on short-term gains; it should be based on long-term value. The investor should have the priorities of a business owner.