Buffett & his Strategies

Starting from today on a frequent basis I'll be posting a few articles on value investing. This is a blog that I had started long time ago but was left stranded due to some other preoccupations. Let us today look into Warren Buffett & his style of investment, the principles that he follows. Value investing is something that has been rewarding investors in the long run, and is a proven technique to make money in the long run. 

1. Choose simplicity over complexity

When investing Buffett has always followed a simple approach and that is invest in businesses only which you understand, and do not try to complicate things and invest in businesses that you do not understand. His famous quote "I have pledged-to you, the rating agencies, and myself- to always run Berkshire with more than ample cash. When forced to choose, I will not trade even a night's sleep for the chance of extra profits" says it all. So what do we learn from this is that we need not swing at every pitch, but then wait for the right time to invest in. For eg.) Why did Buffett buy tons of Coca-Cola in 1987, and lots of American Express in the year 1963 ? Why these companies and these years only ? That's because these were the years when these companies were trading at cheap prices and were struck with one time huge but solvable problems. We also need to buy only what we understand and are ready to hold for the next 5-10 years.

      2. Practice independent thinking

Wall Street is the only place where people ride to in a Rolls Royce to get advise from those who take the Subway is what Mr. Buffett has to say. When it comes to investing, self conviction is what is really important, if you lose conviction, you lose everything. Then even a 10-15% temporary drop in the share price will make you jump out of the stock. However people continue to listen to the Brokers, the so called Research companies etc. which tells you less about the company but more about the person making such research. It's only when you think independently you are bound to hold a particular stock for really long term, it's your conviction that'll make you hold it for longer time. When you ask your Broker or the so called analysts about a particular stock "These stocks, Should I buy or sell?" their honest answer would be "Who cares, Just do it!!". They won't ever say it straightforward. Because it's your volume and quantum of transactions that is going to make money for them.

     3. Maintain proper Temperament 

Temperament is the self control of a person on oneself. It is something that neither gives you great pleasure from seeing the rising stock prices that you hold nor does it gives you sleepless nights on seeing the stocks go down by 50% which are held by you. Maintaining the right temperament is very much important for an investor. Assuming you bought Eicher Motors in the year 2000-2001 when it was trading at Rs. 25, the stock went all the way to Rs. 50, you thought that you've doubled your investment and let's sell the stock. Here's where temperament plays it's role. Not deriving pleasure from the rising prices and not fearing when the prices plummet. Only a stockholder who wants to sell his stocks in the near future shall be happy with the rising prices. Needless to say that today the price of Eicher motors is more than 20,000 per share.

These are my two cents on some of the strategies of Buffett, will continue this post in my next article with some more knowledge on investing. Stay Tuned and Happy Investing:)