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Wednesday, August 03, 2016

Warren Buffett's 3 Point Plan to Great Investment Success...

Warren Buffett's 3 Point Plan to Great Investment Success...

From Equitymaster.com

Many, many years back, Mr. Warren Buffett famously said he is not comfortable investing in technology companies because they are constantly evolving & he does not understand them. 
Of course, Mr. Warren  Buffett is allowed to change his mind, which he has in recent years by picking up stakes in IBM and recently Apple. 

Does that mean that Mr. Warren  Buffett missed out on big opportunities by not investing in tech companies right from the start? 

Maybe. But his reluctance did spare him from the dot com bubble. And it's hard to argue with the strategy. 

Over the years, he's become the greatest investor of all time, multiplying Berkshire Hathaway's wealth many times along the way. 

He did so by sticking to his three core principles of value investing. These principles are as relevant today as they were 20 years ago. 

So let's go through them. 

The first is his focus on exceptionally valuable companies. 

These are companies with honest and able managements, unencroachable moats, and strong financials - what Berkshire calls 'non-exit businesses'. 

Once you are able to buy them at a decent price, it makes sense to hold them for the long term, as their strong advantages and ability to withstand competition means they will be able to sustainably deliver healthy returns to shareholders.

 Having said that, such businesses are not always easy to find and that too at cheap valuations. 


The second is staying within his circle of competence. This means not touching companies and businesses that you don't understand - just as Mr. Warren Buffett did years ago with tech companies. 

The reasons could be many: the business model, the industry dynamics, and so on and so forth. 

A company may very well be 'hot', but it is better to go against the crowd and stay away if you don't understand what you'd be getting yourself into. 

Third is his focus on 'margin of safety'

Mr. Warren  Buffett learned this concept from his mentor, Benjamin Graham. As I have written before, Graham was not a fan of predicting the future

Indeed, since the future is highly uncertain, he believed that it was almost impossible to predict trends. That is why he preferred to rely on past track records and zero in on companies that were trading at a deep discount to their intrinsic value. It's a concept Buffett strongly endorses and follows. 

These are principles that my team and I also religiously follow while managing the two groups of stocks under ValuePro

Indeed, the stocks that we have picked for ValuePro have strong business models, capable managements, and healthy financials. But importantly, we have selected these stocks because they were trading at a sufficient discount to intrinsic value. 

So you see, Warren Mr. Warren Buffett's principles have stood the test of time, even in today's fast-evolving business landscape. 
Warren Buffett's 3 Point Plan to Great Investment Success... Reviewed by S. Chitra on August 03, 2016 Rating: 5 Warren  Buffett's 3 Point Plan to Great Investment Success... From E quitymaster.com Many, many years back, Mr. Warren Buffett famo...

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