10
Apr 2023
How Buffet does it by James pardoe
This blog is about the book called How Buffet does it by James pardoe. This book is about 24 simple investing strategies which Warren Buffet follows to do sound investments.
Buffet only invest in companies where he can understand the business, he suggests people to choose simplicity over complexity. He finds the long lasting companies having predictable business model. If you don’t understand the business don’t invest in it. Don’t get tempted by get rich quick deals involving relatively conplex companies. They are most unpredictable in long run.
Make your own investment decisions, don’t listen to any broker or investment advisors. Never make an decision because others tell you. Learn some basic concepts of accounting & financial market. Do your study & make your own investment decisions
Maintain proper temperament, don’t panic , be patient. Let other people overreact to narket, keep your head when others don’t then you will be benefit. Buy great companies & hold them for years. According to buffet you need only ordinary intelligence but i. Addition to that you need proper temperament that can help you to survive in storms so you can stock to your long term plans. Buy a stock of great businesses & hold them & relax. Don’t buy stock because of their price actions, buy stock on the basis of analysis & future prospects of business, evaluate fundaments of business before buying stock like profits , cashflow, balance sheet ,etc .
Find the companies whicj have good products, companies which stand out from their competitors like companies having no close substitute, businesses that are less capital intensive.
While many investment advisors suggest us to diversify our investment buffet suggest to diversify only in few companies, according to him identify the top 5 or 10 businesses & concentrate your investment in those stocks only. Why to invest in 20th company if you know top companies are going to perform better
Practice inactivity not hyperactivity, when you buy stocks buy it for longer time, don’t panic because of current market trends if you know your stocks are strong then They will give it result in long run. Don’t look at stock price regularly. Shift your focus to fundamentals from price actions.
View market downturns as buying opportunities, when market starting fallen people sell their good stocks at lower rates it is opportunities for people to buy good stocks at lesser price.
Find a good companies that are available on sale that are having great future prospects, having good management.
Ignore the macro & focus on micro, according to buffet large trends that external to business doesn’t matter little things that are business specific that only matters. This macro event can create opportunities just keep eye on The opportunities arises out of this events.
Take a close look at management, quality of management is almost as important ad quality of underlying business, look for shareholders friendly companies
Practice independent thinking. Don’t follow the herd, do your homework, gather information, sit down , think & make your own investment decisions
Stay within your circle of competence. Develop a zone of expertise & operate within that zone only. Figure out the industry which you feel more comfortable, don’t invest in companies which are outside of your competences
Ignore stock market forecast, according to buffet short term forecast are uselessInstead of spending time on listening to forecast spend your time on analyse the business track record, the future is uncertain instead of worrying about we don’t know we can concentrate on what we know
Understand the ‘Mr. Market & ‘margin of safety’. This concept were taught by benajamin graham to warren buffet. Understanding this concept will help investors to take sound decisions. Understand how market performs, wait market to get depressed & lower the stock price enough to provide margin of safety buying opportunities.
Market is driven by 2 emotions fear & greed, be fearful when others are greedy & be greedy when others are fearful. When market is falling people become fearful they sold good stock at lesser price because of fear that market will fall further as well so this time is opportunity for value investors be greedy at this point because good stocks are at sale at lesser price, when market is bullish people get greedy they perceive that maarket will grow further so they purchase at high price , so at time we can sale stock at higher price. So in short buy when people are selling & sell when people are buying
Read, read more & then think. Make habit of reading books, peroficals, annual reports & then think, buffer spend 6 hours of day in reading 1-2 hours using mobile & rest of the time for thinking
Identify people who you admire most, find out what qualities they have & then identify the peoples you don’t admire, quality of them because of it you don’t admire them. Try to adopt the qualities of people you admire & avoid the qualities of people you don’t admire it will help you make good habits & it improve your productivity. Financial success bis a matter of right habits
Avoid the costly mistakes of others. We can learn either from our own mistakes or observing the mistakes of others. Identify the hidden cost associated with your investment it will kill your investment.
Become a sound investor. Buffet focuses on value investing which is get rich slow plan because it take time for acorn to become an oak tree. Get quick rich plan often leads to get quick poor plan. So instead getting rich quick do your study & invest in stocks which will help you to make rich in long run definitely.
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