Professional Documents
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This book presents 24 ideas Buffet has followed from day one.
Your reviewer enumerates below these twenty-four ideas with his comments for your ready reference:
Become a value investor. It’s proven to be a very rewarding technique over the long term.
To succeed in the market, you need only ordinary intelligence. But in addition, you need the kind of temperament
to help you ride out the storms and stick to your long-term plans. If you can stay cool while those around you are
panicking, you can surely prevail.
4. Be Patient
Think 10 years, rather than 10 minutes
Don’t dwell on the price of stocks. Instead, study the underlying business, its earnings capacity and its future. If
the question is, “How long will you wait?” – “If we’re in the right place, we’ll wait indefinitely” says Buffet.
Business performance is the key to picking stocks. Study the long-term track record of any company that is on
your buy list. Buffet looks for following five main things before investing in a company.
(i) Business he can understand
(ii) Companies with favorable long-term prospects
(iii) Business operated by honest and competent people
(iv) Businesses priced very attractively
(v) Business with free cash flow
Don’t think about “stock in the short term.” Think about “business in the long term”.
Do not be tempted by get-rich-quick deals involving relatively complex companies (e.g., high-tech companies).
They are the most unpredictable in the long run. Look for the absence of change. Look for the business whose
only change in the future will be doing more business, e.g Gillette Blades.
Portfolio concentration – the opposite of diversification – also has the power to focus the mind. If you’re putting
your eggs in only a few baskets, you’re far less likely to make investments on impulse or emotion.
Abstain from looking at share prices every day. Study the playing field and not the scoreboard. Know the value of
something rather than the price of everything.
Change your investing mind-set. Reprogram your thinking. Learn to like a sinking market because it presents
great buying opportunity. Pounce when the three variables come together. When a strong business with an
enduring competitive advantage, strong management, and a low stock price come onto your investment screen.
It’s possible to imagine a cataclysm so terrible that the markets would collapse and not bounce back. Externalities
don’t matter – and you can’t predict them, anyway. And what can you do about them? Focus on what you can
know: the workings of a good business.
Assess the management team before you invest. A investing in any company that has a record of financial or
accounting shenanigans, (creative accounting, accounting jugglery). Weak accounting usually means weak
business performance. Strong companies do not have to resort to tricks.
Ignore the charts. A value investor is not concerned with charts. Invest like Benjamin Graham. Graham told
investors to “search for discrepancies between the value of a business and the price of small pieces of that
business in the market.” This is the key to value investing, and it’s far more productive than getting dizzy studying
hundreds of stock charts.
Offer documents of most mutual funds say – in small print – that past performance is no guarantee of future
success. Buffet says the same thing about the market: If history revealed the path to riches, librarians would be
rich.
Make independent thinking one of your portfolio’s greatest assets. Being smart isn’t good enough, says Buffet.
Lots of high-IQ people fall victim to the herd mentality. Independent thinking is one of Buffet’s greatest strengths.
Make it one of your own.
Write down the industries and businesses with which you feel most comfortable. Confine your investments to
them.
Make sure that you also understand Buffet’s concepts of Mr. Market and the margin of safety. Like the Lord, the
market helps those who help themselves. But, unlike God, the market doesn’t forgive those who “know not what
they do”.
Bide your time, and wait for Mr. Market to get depressed and lower stock prices enough to provide a margin-of-
safety buying opportunity.
20. Be Fearful when Others Are Greedy and Greedy When Others Are Fearful
You can safely predict that people will be greedy, fearful, or foolish. Trouble is you just can’t predict when or in
what order.
Buy when people are selling and sell when people are buying.
He therefore advises get in the habit of reading. The best thing to start is to read Buffett’s annual reports and
letters. Finally, restrict your time only to things worth reading.
Make sure that you have the right role models. Strive for rational behaviour, good habits, and proper
temperament. Write down the habits, practices and philosophies that you want to make your own. Then be sure to
keep track of them and eventually own them. Financial success is a “matter of having the right habits”.
To become a sound investor, you need to develop sound investing habits. Always fight the noise to get the real
story. Always practice continuous improvement.
It’s less about solving difficult business problems, says Warren Buffet, and more about a ing them. It’s about
finding and stepping over “one-foot hurdles” rather than developing the extraordinary skills needed to clear seven-
foot hurdles.