InvestMent Strategies Warren Buffet Bets Upon

Posted: October 20, 2005 in Arbit Thoughts

One thousand dollars invested in Warren Buffet’s Berkshire Hathaway
stock in 1965 would be worth roughly $ 5 million today! This astonishing
success didn’t come through Buffet’s use of high-tech computer trading
models or intricate market timing systems. Instead, it came through his
stubborn adherence to the time-honored fundamentals of value investing.
The book, “How Buffet Does It”, is a step-by-step guidebook for investing like Buffet in
any market environment. 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:

1. Choose Simplicity over Complexity : When investing, keep it simple. Do what’s easy
and obvious.
If you don’t understand a business, don’t buy it.

2. Make Your Own Investment Decisions : Don’t listen to the brokers, the analysts, or
the pundits. Figure it out for yourself.
Become a value investor. It’s proven to be a very
rewarding technique over the long term.

3. Maintain Proper Temperament : Let other people overreact to the market 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.

5. Buy Business, Not Stocks : Once you get into the right business, you can
let everyone else worry about the stock market.
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.

Business he can understand
Companies with favorable long-term prospects
Business operated by honest and competent people
Businesses priced very attractively
Business with free cash flow .

Don’t think about “stock in the short term.” Think about “business in the long term”.

6. Look for a Company that is a Franchise : Some businesses are “franchises”.
Franchise generates free cash flows.

7. Buy Low-Tech, Not High-Tech : Successful investing is rarely a gee-whiz activity.
It’s less often about rockets and lasers and more often about bricks, carpets, paint,
shaving blades and insulation.
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.

8. Concentrate Your Stock Investments A the “Noah’s Ark” style of investing –
that is, a little of this, a little of that. Better to have a smaller number of
investments with more of your money in each.
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.

9. Practice Inactivity, Not Hyperactivity : There are times when doing nothing
is a sign of investing brilliance.
Be a decade’s trader, not a day trader.

10. Don’t Look at the Ticker : Tickers are all about prices. Investing is about a
lot more than prices. It is about value. It is about wealth.
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 everythin

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