Basically, he is a buy and hold investor unlike most of us who are day traders or swing traders as many of us just want to get rich quick. Warren Buffet thinks simply in terms of value and growth. Before allocating his cash, he will studies a company thoroughly before investing in it and looks for value, quality and growth before investing in that company. He thinks like a owner of a company when investing in that business and not like a day trader who is only interested in taking profit in the short term.
The investing method of Warren Buffet is just what Benjamin Graham taught in his famous book,"The Intelligent Investor." He had read that book at a very early age. Throughout his investing career, he has been a firm disciple and believer of Ben Graham. It was Ben Graham who first talked of the stock having an intrinsic value although it was Warren Buffet who took that idea and practically applied it when investing in stocks.
Warren Buffet will thoroughly studies a company, its business, its management before making an investment in it. He looks for those companies that have an intrinsic value that is higher than the market value. What it means is that those companies have a sound foundation but have gone out of favor with the markets for one reason or other. Overtime, their stock price will climb up to the intrinsic value. He knows that long term investing is here to stay. This is what he looks for in a company when investing:
Management
He puts the management of the company on the top checklist and studies it thoroughly. A poorly run company in a long term business has the potential of making a comeback. When he find that the company is being poorly run, he tries to change the management after gaining a significant amount of shares in that company. Most of the time, this strategy has worked very well on the long haul. You should also study the company management before investing in that company.
A Business That Has Long Term Potential
Buffet believes in investing in those businesses that have a long term potential like insurance. He has invested in insurance companies. He has also invested in other companies that had a long term business potential. He thinks that these businesses are going to growing over the next many decades so he invests in them and most of the time, he has been proven to be right.
Buying At Discount
As said above, he calculates the intrinsic value of a stock and only buys it when the stock is under-priced by Mr Market. He never buys those stocks that he thinks are overpriced. He never invested in the tech bubble rather stayed away from it thinking most of the technology stocks in the early 2000 to be overpriced. He was proven right by the market when the tech bubble burst.
Investing Long Term
Think of the stock as an ownership right to buy and hold. Understand the company, understand its business, understand its management and then invest in that company for a couple of years and join the ranks of investors like Warren Buffet.
A toast to your value investing success.
