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        Guru Lessons

        Views 41562022.09.21

        How to invest like Warren Buffett?


        Warren Buffett is considered one of the most successful investors in the world. His key investment principles include: ignore daily market moves, find good companies, invest in what you know, and Buy-and-hold.

        Warren Buffett is undeniably the most closely watched, highest-profile investor in modern history. After all, no one boasts a superior track record of outperforming the S&P 500 Index than he does.

        His philosophy is simple enough: Don't speculate, invest in quality companies, and hold them for the long term.

        If you want to take a page from Warren Buffett, here are some of his key principles you can integrate into your investing practice.


        Ignore daily market moves

        Buffett doesn't pay much attention to the daily ups and downs of the stock market.

        If fact, when asked about it during Berkshire Hathaway's 2008 annual meeting, Buffett said 「forget about the word 'stock.'」

        「What we see when we look at the stock market is we see thousands and thousands and thousands of companies priced every day,」 he said.

        「We ignore 99.9% of what we see, although we run our eyes over them. And then every now and then we see something that looks like it's attractively priced to us as a business.」

        Key takeaway:See it as a business rather than a 'stock' priced every day.

        Find good companies

        Buffett waits for the right company to come along at the right price.

        He's well-known as a value investor, which is someone who chooses equities that seem to be trading for less than their intrinsic value.

        However, he has also been incredibly successful at avoiding value traps. Value traps happen when investors think they are getting a stock at a discounted price but in reality, the business has a fundamental flaw that greatly reduces its intrinsic value.

        One explanation for this ability is that Buffett's main criterion for making a stock purchase is firm quality, whereas price is an important, yet secondary characteristic.

        Buffett explained this philosophy in his annual letter to Berkshire Hathaway shareholders as far back as 1989.

        Key takeaway: It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price

        Invest in what you know

        Buffett has famously said to 「never invest in a business you cannot understand.」

        「You have to learn how to value businesses and know the ones that are within your circle of competence and the ones that are outside,」 Buffett told CNBC's Becky Quick during an interview.

        That doesn't mean he thinks you have to be an 「expert」 on every company. Investors need to have the 「ability to correctly evaluate selected businesses,」 he wrote in his 1996 annual shareholders' letter.

        Key takeaway: Be honest, both emotionally and intellectually.

        Buy and hold

        As far as Buffett is concerned, he's in it for the long haul.

        「When we buy a stock, we would be happy with that stock if they told us the market was going to close for a couple of years. We look to the business,」 he has said.

        「It's exactly the same way as if you are going to buy a farm,」 he added.

        「You would not get a price on it every day and you wouldn't ask whether the yield was a little above expectation this year or down a little bit. You'd look at what the farm was going to produce over time.」

        That's it for this section. Thanks for reading!

        Next section we will go over Warren Buffett's portfolio so we can better understand how he applied these principles in practice.

        Source: Investopedia, CNBC

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