Buffettology Warren Buffett Quotes amp Investment Strategy for Stock Picks
Buffettology: Warren Buffett Quotes & Investment Strategy for Stock Picks Skip to content
You own shares of Apple, Amazon, Tesla. Why not Banksy or Andy Warhol? Their works’ value doesn’t rise and fall with the stock market. And they’re a lot cooler than Jeff Bezos.
Get Priority Access There’s a lot to be gained from his quotes alone. Here are a few sayings that have been attributed to him.
Buffett’s choice businesses include those that make products which are consumed or quickly wear out such as: SnacksPopGumToothpastePensRazor blades Why? Because higher product turnover implies more revenue for the company. If you can also find a leading name brand that people gravitate towards, you have a good starting point. 2. Communications
Another major category of companies that Warren likes is communications. Advertising agencies are a major part of this group as they expand into new platforms like cell phones and tablet computers, in addition to the old standbys of TV, radio, and newspapers. This is an area where you will need to be careful because what is new today can be discarded as waste tomorrow. Be aware that advertising may go down with the economy as businesses prune costs during tough times. Also, as people turn from print to web, some forms of advertising will increase at the expense of others. 3. Boring Services
The last category is for repetitive and boring services. A few examples of these highly profitable companies doing the same job over and over might be: Lawn care companiesJanitorial servicesBasic tax filing services “Boring” itself is not enough to warrant an investment. However, if something is both boring and essential, there’s a good chance it’s a stable, efficient, easy-to-operate business that will have a long-lasting life.
Warren Buffett analyzes considerable historical financial data on a stock. In general, this would exclude new companies where only a few years of financial data exist. He picks stocks based on their intrinsic value and the ability of the company to continually increase that value, often wanting a minimum of 15% annually over many years. This kind of regular increase can be considered a High Annual Rate of Return. 2. Market Edge
This includes companies that have a monopoly, where no other alternative exists. Think of a toll-bridge as one example. Other market edges could include companies that sell a unique product. Buffett is not as keen on commodity-based companies where the price is set by the market, competition is stiff, and the company has no ability to freely adjust for inflation. 3. Finances
Warren looks for these financial traits in companies: Increasing Earnings. It is especially important that a large amount of this money is being retained and used for further growth. Sitting on a big pile of cash, or giving earnings back as dividends, is not viewed as desirable since extra tax may need to be paid on dividends, and the burden of re-investing is placed on the shareholder.Reasonable Financing. The financing for the company should be reasonable, without a high debt-load.Simple Business Model. The company model should be simple with few moving parts, and not a lot of money needed to maintain the business model. It should be a lean, mean, and profitable operation. But when you find such a wonderful company, how will you know if it is a good buy? For that we need to learn how to value a stock the Buffett way.
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By Kurtis Hemmerling Date September 14, 2021FEATURED PROMOTION
While it may be tempting to throw yourself into the dramatic highs and lows of investing in the stock market in search of instant gratification, it’s not necessarily the most profitable choice. Warren Buffet has spent his career watching investors pounce on “hot” companies, only to flounder when the market takes a plunge. All the while, he’s been steadily accumulating wealth by taking an entirely different approach. You may be thinking, “OK, the guy’s successful, why should I care?” Well, in 2008, Warren Buffett was the richest man in the world with an estimated worth of over 62 billion dollars. This kind of wealth is not a result of sheer luck. He’s gained his enormous fortune using a very specific investment strategy, developed on a basis of long term investing. The great news is that, by learning a little about the way Warren Buffett thinks, you too can enjoy greater success in the stock market. So what exactly is Warren Buffett’s investment strategy and how can you emulate him? Read on and find out.Secrets to Investing Success
Since Warren Buffett has never personally penned an investment book for the masses, how does one go about learning his secrets? Luckily, many of his letters to shareholders, books that compile such letters, and insights from those close to him are readily available to the public.You own shares of Apple, Amazon, Tesla. Why not Banksy or Andy Warhol? Their works’ value doesn’t rise and fall with the stock market. And they’re a lot cooler than Jeff Bezos.
Get Priority Access There’s a lot to be gained from his quotes alone. Here are a few sayings that have been attributed to him.
Warren Buffett Quotes on Investing
“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”“Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid.”“If a business does well, the stock eventually follows.”“Price is what you pay. Value is what you get.”“Time is the friend of the wonderful company, the enemy of the mediocre.” Clearly, Warren Buffet is a value investor. He looks for great companies, or “wonderful” ones as he puts it. He is not looking at hot sectors or stocks that may shoot up now, only to cool and fall later. He wants an efficient running business that has favorable long-term prospects. Additionally, although he wants great stocks, he does not want to pay a premium price. Warren uses a specific calculation to arrive at a fair valuation, then waits until a market correction or crash puts those prices on his doorstep. Now that you know a little about his basic investing philosophy, let’s take a more in-depth look at how he makes investment choices.Buffettology and Stock Selection
The book, Buffettology, is a fantastic resource, primarily written by Warren Buffett’s former daughter-in-law, Mary Buffett. The co-author, David Clark, is a long-time friend of the Buffett family. Since these authors probably have some special insight into how Warren Buffet privately analyzes stocks, it’s worth hearing what they have to say. Here are a few of the major points they focus on:Best Stock Industries
The authors of Buffettology recommend looking for promising companies in 3 broad categories: 1. ConsumablesBuffett’s choice businesses include those that make products which are consumed or quickly wear out such as: SnacksPopGumToothpastePensRazor blades Why? Because higher product turnover implies more revenue for the company. If you can also find a leading name brand that people gravitate towards, you have a good starting point. 2. Communications
Another major category of companies that Warren likes is communications. Advertising agencies are a major part of this group as they expand into new platforms like cell phones and tablet computers, in addition to the old standbys of TV, radio, and newspapers. This is an area where you will need to be careful because what is new today can be discarded as waste tomorrow. Be aware that advertising may go down with the economy as businesses prune costs during tough times. Also, as people turn from print to web, some forms of advertising will increase at the expense of others. 3. Boring Services
The last category is for repetitive and boring services. A few examples of these highly profitable companies doing the same job over and over might be: Lawn care companiesJanitorial servicesBasic tax filing services “Boring” itself is not enough to warrant an investment. However, if something is both boring and essential, there’s a good chance it’s a stable, efficient, easy-to-operate business that will have a long-lasting life.
What Characteristics in a Company to Look For
Once you know where to look, it’s important to know who you should turn your attention to. The book cites the following factors for determining which companies to watch closely. 1. Existence and ValueWarren Buffett analyzes considerable historical financial data on a stock. In general, this would exclude new companies where only a few years of financial data exist. He picks stocks based on their intrinsic value and the ability of the company to continually increase that value, often wanting a minimum of 15% annually over many years. This kind of regular increase can be considered a High Annual Rate of Return. 2. Market Edge
This includes companies that have a monopoly, where no other alternative exists. Think of a toll-bridge as one example. Other market edges could include companies that sell a unique product. Buffett is not as keen on commodity-based companies where the price is set by the market, competition is stiff, and the company has no ability to freely adjust for inflation. 3. Finances
Warren looks for these financial traits in companies: Increasing Earnings. It is especially important that a large amount of this money is being retained and used for further growth. Sitting on a big pile of cash, or giving earnings back as dividends, is not viewed as desirable since extra tax may need to be paid on dividends, and the burden of re-investing is placed on the shareholder.Reasonable Financing. The financing for the company should be reasonable, without a high debt-load.Simple Business Model. The company model should be simple with few moving parts, and not a lot of money needed to maintain the business model. It should be a lean, mean, and profitable operation. But when you find such a wonderful company, how will you know if it is a good buy? For that we need to learn how to value a stock the Buffett way.