The Warren Buffett Method of Investing in Stocks

The warren buffett method of investing in stocks 1

If he were not a famous investor in shares, he would have been a famous author. To be frank, he is both! Warren Buffett is well-known for his quotes and one-liners, which reveal the inner joy he must be experiencing while on the serious game of investing. Buying and selling shares! He has the keen sense for doing both, for each transaction means tens of thousands of dollars for him. He recognizes the worth of each dollar that makes the millions and millions that make billionaires. He is one of richest billionaires in the world today, like of which you count with your fingers. Other billionaires have the great industrial empires behind them. As for Buffett, he is an empire by himself! His brain is the economist, analyst, think-tank, Managing Director and what not!

Luck favors the brave. The world of investing is interested to know how he chooses the stocks and why he does what he does. His way of working has become the philosophy for the investors. The best way to understand Buffet is to follow him. Buy what he buys. He is considered as a long-term investor. According to him “the best holding period fort a share is, forever”.

Some of his golden methods of investing are:

  1. As Ryan Barnes says “Warren Buffett has an uncanny ability to pick the stocks with the greatest potential for growth.”
  2. He has the patience and the worthy pockets that permit him to wait. Do you?
  3. According to him, “the stock market is a method for transferring money from the impatient to the patient”.
  4. Choose some stocks that have the latent capacity to tender more than average returns in the long run. Be not afraid of the short term market ups and downs.
  5. Among the index investing and active investing which are popular in the stock trade, Buffet chooses the index investing. He doesn’t stop there. He talks about the third alternative, which makes what Buffet is! That is “focus” investing which is a specific type of portfolio strategy, which has the capacity to beat the index. This is the big canvas for Buffett.
  6. Focus means, to select some stocks that are likely to produce more than average returns  from the long-term perspective, invest the substantial percentage of your investible funds  and have the fortitude to hold on to them when the market hisses and fumes, goes up and tumbles down.
  7. Buffett gives top priority to the management of the company. He tracks the share price, analyzes the economics of the business it is doing, but who does the business is more important to him. It is the question of common sense. Great people will not do great mistakes. The stock of well-managed companies is bound to rise. Buffet thus, reaches out to the outstanding companies.
  8. Buffett goes to find the stability of management, which according to him leads to high probability of performing better in future.
  9. Buffett advocates, ‘less is more’. For the investor who doesn’t have time for deep studies and stock analysis, his advice is simple and straightforward. Find five to ten sensibly priced companies, which have the long-term competitive advantage. Study their products and the market for them. Own the stocks of a limited number of very good companies.
  10. Buffett mainly focuses on consumer foods, newspapers, insurance companies and furniture stores.
  11. From the point of an analyst, Buffet ensures that the debt of the companies that he is going to invest is not too high. Due to change in banking regulations, the credit squeezes, the company may have problems of raising finance for expansion. He wants the investor to have a close look at the debt to equity ratio, the current ratio and the quick ratio.
  12. His great emphasis is on “holding the stocks forever”.

One final advice– Do your homework well,   before following anyone and investing.  Follow your conscience and judgment. Take a decision in ten minutes that will last for a decade.