The Strategies from the Genus’ of Investing: Warren Buffett & Others
Let’s face it; we all love a quiz that tells us what type of person we are, and reading how much that personality type resonates with us. But on a practical note: having a positive personality can help you make better choices in life. The same goes for investing. With an extraordinary knowledge of investing, Warren Buffett has been considered by many as one of the most successful investors in the world. His contributions to value investing over the years have been globally recognized. Warren Buffett was able to build his fortune in two essential ways: by owning private companies that generate large amounts of income for him to deploy, and by entering the insurance business to get his hands on cheap investment capital.
Warren Buffett style of investing
Warren Buffett has always followed anintrinsic value approach: one in which a security is deemed to be attractive based on the relationship between its price and the value that a knowledgeable buyer would pay for the whole business. Warren’s point is deeper than it sounds – buy a wonderful company when it is a bargain and only when you are certain that it will be worth more 10 years from now than it is today.
Your personality influences a lot of things, one of them being how you invest your money. How well do you know yourself? Do you know your tolerance for risk and loss? Have you pinpointed your investing time horizon? These are some important questions to ask yourself today before making an investment.
Every investor needs to understand how much risk they are willing to take and which types of risk most worry them. Your risk tolerance, which is the degree of uncertainty you are willing to take on to achieve potentially greater rewards, is determined by a combination of factors, including your investment goals and experience, how much time you have to invest, your other financial resources and your fear factor.
To emulate Buffett's success, an investor can’t pick stocks at will and be done. You have to take your time to research each company you are interested in before handing over any money. Investing is a practice and it's very important for you to think of it like a practice, just like yoga or meditation or practicing tennis – anything that you enjoy doing and want to become better at over time, without a specific end goal where you are going to stop.
Taking the time to choose individual stocks is a good choice but it's not for everyone. Warren Buffett offers good advice in that case too. If you are not going to take the time to learn to do value investing, Buffet says you should invest in a low-cost index fund, especially for long-term retirement savings.
Finally, investors should always have this in mind – always strive to own a great company that, even if the stock prices go down, you won’t have to worry and you will stay with it until it goes back up. And, ideally, you never sell.
Warren Buffett's’ strategies on investing are to find companies that you trust, believe in and understand the business model. If not walk away now. One must learn to be patient, to wait for these stock prices to fall to value prices and then hold on the stock for the long term at least 10 years, if not 20 years or even 30 years. Buffet shares the view the best way to avoid capital gains taxes is to hold the stock for an extremely long time if not indefinite.
What if you don't have the knowledge or time to research like Warren Buffet?
What if you don't know of any of these companies, what do you do then? Well, Warren Buffett openly releases his investment choices each year which companies that his company Berkshire Hathaway invests into. This will make the financial news, the local business section of your newspaper. If you can’t think like a Warren Buffett just follows his choices. Or according to Buffett, it is better to have 10 quality “Great” stocks, and then to have hundreds of average stocks. Now if you are not the personality or skills to truly buy low and sell high, what should you do? Warren Buffett states you are best to buy a passive fund or Index fund rather. Still in the dark here are some recommend books on Warren Buffett: The Tao of Warren Buffett Mary Buffett and David Clark. Warren Buffett and the interpretation of financial statements Mary Buffett and David Clark. Buffettology Mary Buffett & David Clark.
Why most people fail at stocks?
It sounds simple enough, but most people are not programmed to buy stock low and sell high. The reason is emotional investing theory most of the population is hardwired to sell low, and buy high this is due to human evaluation and our ability to survive. The same goes for fund managers; they often have to follow the majority of other investors and often feel the need to always being in the market. Be careful there are many salespeople going by the tiles of the financial adviser, insurances agents are mostly and not always what I like to call “mutual fund salespeople”. I would recommend you to become your own expert and follow the advice of other experts that state that even an average investor can outpace the S&P 500.
What is the best way to invest in the S&P 500?
The easy way to meet the S&P 500 is to buy in a low-cost passive fund the mirrors the S&P 500. The easiest way to use cost averaging which simply means buying into a mutual fund(s), every pay period, one a month, or once a quarter. The idea behind these strategies is that you will be placed in an automatic system that will buy mutual funds at the peek and the bottom of the market to avoid emotional buying or selling.
The Joel Greenblatt way to invest in value-based
How do you out pace the S&P 500? Is not to purchase high cost managed mutual funds, and second follow the advice of Joel Greenblatt which is a Professor at Columbia University and former fund manager, he states in his book The Big Secret for the Small Investor: The shortest route to long-term investment success that most of the top funds manager at one time was at the bottom. And there is no way to predict who will be the next Warren Buffet. He has developed a system of value index mutual funds based on the S&P 500 that are value based and are a better way to buy low and sell high. He states that the problem with the S&P 500 is how the system to purchases based on capitalization. Meaning that the top stock will have the highest weight, and the one ranked second will have the next highest value and so on and so on. Until one will get to the 500th position will be a very small part of the fund. Joel Greenblatt believes that is created and buy high and sell low buy strategies. Joel Greenblatt believes that a buying 1/500 of each stock would be a better system or one based on dividends or gross sales would be a better system then what we have today. And one can produced 1-2% better than returns than S&P 500 and even better than some fund managers. On his website, he gives the mutual funds symbols that he recommends at www.valueweightedindex.com.
The Burton Gordon Malkiel style of diversified investment strategies
The next strategy is to have the greatest diversification of your US stocks, bonds, and international stock markets. Not just investing in the top 500 US stocks, but in the larger cap, mid cap and small cap stocks in Wilshire 5000 in encompasses the entire US stock market. This was developed by Burton Gordon Malkiel a Princeton professor in his book The Random Walk Guide to Investing: Ten rules for financial success states this is the way to the greatest return.
All these strategies are a complete contradiction, with each other, but each one can be used for different personality styles and risk tolerances. The question one needs to ask is what ideology fits me the best? Am I willing to send a lot of time, some time, or no time reaching mutual funds, stock, and balance sheets? It is clear the Warren Buffett is the riskiest and the one strategy that will gain the best returns. Joel is little less complex, and invest value will give you better returns over aggressive growth funds, over the longer term, and Burton Gordon. Malkiel will give you a chance to go autopilot and invest the most passive method. The risk is diversified, over the largest amount of stock or bonds. Burton Gordon. Malkiel ran simulations, showing it is a smart investment style. In his book Burton Gordon Malkiel The Random Walk Guide to Investing: ten rules for financial success states this is the way to the greatest return. States the mutual fund symbols and helpful list of allocation tables for different age groups.
I personally see myself investing in all of these models when the market is down, I invest like Warren Buffet. When the market is flat or not producing great returns I am applying a value-based investing with great diversity. I do hold rather large low-risk fund(s), based on my age, waiting for the market to crash. I can’t tell you when the market will crash, but I am sure it will crash sooner or later. I still have a portion of my investment actually in stocks, mutual funds, bonds, & treasury inflation-protected securities (TIF’s). When the market gets too high I re-balance my trading account and the same is true when I see weakness in the market I re-balance once again. I am always looking for an opportunity to make a good return. No, one knows when the market will be at the top or at the bottom. But one knows when the market is priced fairly or slightly overvalued and when the market is undervalued. This is when a smart person makes their move. When the market is high move some of your investment to safe, and likewise when the market is weak move some of your safe (low risk) investment to higher risk.
If all this is still too complex or just don't have the time to invest you own money. Or just need to sit down with me the Columbus and financial & success coach to build your own personal strategy of investment success. You can call me or text me at 614-282-3162 or check out my website.
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