Warren Buffett’s Calm & Measured Approach to Investing
August 8, 2009
Warren Buffett is most likely the best investor of modern times. He will certainly go down as one of the top two or three influences. Yet, he goes about investing in ways that are often contradictory to the market’s moods. Here are some of his quotes:
If a business does well, the stock eventually follows.
If past history was all there was to the game, the richest people would be librarians.
The investor of today does not profit from yesterday’s growth.
Buffett’s philosophy has not changed, nor his personality or attitude in life. Despite being one of the richest men in the world, he still lives in his small home in Omaha, Nebraska that he bought decades ago.
Investing Strategies & Personalities
Buffet’s investing approach is certainly much different than those of TV shows like “Fast Money” and hosts like Jim Cramer who focus on the next “trade.” I’m not talking down on these guys; I used to watch “Fast Money” religiously until Dylan Ratigan left. Jim Cramer, for all of his antics, generally calls a pretty good game. It’s just if I want a “Booyah,” I’ll turn on ESPN.
There are two polarizing styles of playing the stock market here. The CNBCs, Motley Fools, & Jim Cramer’s of the world play for the “trade.” This is a much more labor intensive, and depending on where you hold your account, expensive technique. They use different techniques, analysis and thought processes when making decisions on a particular stock.
On the shows or websites, you will hear or read about option movements, volatility, swaps and spreads among many other things. These are all extremely important for the trader using these techniques to help him or her make a decision.
Investing in Companies
Warren Buffett is not worrying about these things. He is not worried about a dip in a company like Apple (AAPL) because of the news of a price drop on the iPhone. His analysis no less complicated, but a bit more fundamental. To Warren Buffett, it’s all about the balance sheet. He does not look for a good stock. He looks for good companies; good businesses. As in the quote above, he buys on the value of the company. If the company is as good as he thinks it is, he will be rewarded in time with a rise in the stock price.
Warren Buffett is an investor, not a trader. He focuses on the long term and reaps the rewards of his patience. He’s not always right. Last year was a good example of that. He was considerably “early” in his decision to start buying back in. That being said, I’d bet my vintage Welch’s jelly jar glasses that a decade from now, we will hear about the amazing moves he made when everybody else was afraid to go back in the water.
So why am I writing this? For a little perspective, I guess. Young men and women spend years going to the best schools, learning the intricate details of trading techniques and analysis and they race up and down the investment return “roller coaster.” Sometimes you just need to go back to the basics. Is it a strong business? Does it have a healthy balance sheet?
Warren Buffett’s mentor, Benjamin Graham, wrote a book called the Intelligent Investor in 1949; Buffett described the book as “by far the best book on investing ever written”. Buffett and Jason Zweig collaborated on an updated version of the book containing modern day commentary, relating the concepts to current events in the financial markets. If you want to learn more about Buffett’s principles of investing, check out the Intelligent Investor.
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