At the time of writing this blog post, Dow Jones is reaching new historical records. Bank savings rates are almost at a minimum. In many countries, there are negative interest rates, which means you get less money after a savings period.
Tensions are due to trade negotiations between the US and China. There is a lot of “noise” about it. Sanctions on Huawei and then counter sanctions on Apple !?
Every step is monitored, and then markets respond to every move.
However, the financial market maestro looks at it all from a distance.
This blog post is inspired by a man I admire primarily because of the way he thinks and then his business results. I read about him, watched a lot of interviews, documentaries and the content of this blog post is my impression of his business philosophy. He is a friend of Bill Gates and is 89 years old. In the following text, I am impressed by what turns me on to Warren Buffet‘s most successful financial market investor.
His mindset is very different from the vast majority of investors in the financial markets. I would say he is a true representative of the “old school”. I would add, good old schools!
A man with patience, who does not “turn on” the transient trends, does not follow the effect of the “herd” on the stock market, does not respond to media manipulations, sudden and promising technological innovations that flash briefly and then completely disappear …
One of the key things Buffet analyzes before investing is the Quality of Management that drives a particular company. Familiarity with them is mandatory, so if they meet his criteria, then further analysis, before the investment!
He then analyzes the balance sheets (accounting must be understood) and looks for a company that has been operating steadily for years. He is interested in quality and long term, not risky quick profits!
One of his sentences is that you don’t even think about buying stocks if you can’t wait at least 10 years!
By this, it is different from at least half of other traders in finance who kill themselves with massive daily tradings with less earnings!
Of course, none of them have the approximate earnings Buffet has.
Before investing, it is understood that he understands the business and understands the way a particular company operates. He is looking for companies that are:
- long lasting,
- have the ability to make money and
- have predictable business models.
He don’t want to invest in something he doesn’t understand well! It strictly adheres to its circle of expertise.
When all these filters are passed on by the company, then the stock price is also required to be undervalued. Buffet wants to buy a $ 1 value that sells for 40 cents. That’s the trick. That technique creates the rich in the long run!
Three securities from his portfolio are an example of this:
- The $ 1 billion investment in Coca-Cola shares is now worth more than $ 8 billion,
- GEICO Insurance‘s then $ 45 million shares are now worth more than $ 1 billion.
- The $ 10.6 million investment in Washington Post shares has turned it into a stake that is currently worth about $ 1 billion. Calculate the difference yourself.
The last documentary I watched about him depicts his modest offices, without undue luxury and glamor. Plus, another “detail” stuck in my mind. Just before the interview begins, Buffet gets up to the fridge and, as a good host, brings Coca-Cola to his guest and to himself! What a king!
“When you think about buying on the stock market, think about buying a part of the business (you understand, which you believe in in the long run) rather than buying that company’s stock,” says the Omaha genius!
WARREN BUFFET’S ASSOCIATES
His first associates are longtime friends and also representatives of the “old school” like Charlie Munger, James Pardoe … They do not conform to the latest trends currently recommended.
That team lists financial statements, reads numerous analyzes and comments about the business of companies they plan to invest in, and talks to company managers. The “old school” of this business does not make a fool but rather simply and patiently approaches it. But it sticks to the good old principles. There are no discrepancies.
When it comes to portfolio diversification, this is also different from the general suggestion that it is good to have a large number of different holdings. You know, if you “fail” in one sector to be pulled by the rest. He is a little different here because he does not like to have stakes in many different companies.
He prefers to reduce his portfolio to a smaller number of top companies and then increase his stake while waiting for the right prices. “It’s wonderful to have too much of something that’s good,” says the Omaha maestro.
It is this strategy of concentration in the long run that works wonders!!!
Patience and non-diversification are, among other things, responsible for the success of Buffett’s Berkshire Hathway.
Where else is it different from most?
He does not like everyday trades. He has not made a fortune and neither have the brokers made too much money since he last changed positions at:
- American Express in 1998,
- Coca Cola in 1994,
- Gillette in 1989.
He compares day-to-day traders with bees that go from flower to flower. He thinks that if you found the right flower you should not leave it quickly.
It is normal for stock owners to dislike when markets are falling. Then most usually panic out of the market while some just see the opportunity to buy. You know the situation that due to some external shock, the market will experience a fall in all stocks, regardless of whether they are healthy or bad business models …
When the decline is general, the stocks of top companies fall! Then the moment is used. While others are fleeing the market, Buffet chooses the right investment by its criteria.
It opposes technical analysis and daily monitoring of stock exchange reports. He is interested in the quality and value of the company and its prospects in the long run.
All the noise and panic on Wall Street and other markets with stories about the oil crisis, perhaps the potential war does not tangible him as much as the potential of the company he is analyzing.
- Speaking of financial market shocks, September 11, 2001 was that date. But, three years after that the markets were at their maximum! Media noise does not affect someone who has so much professional and also life experience.
He is quite clear that we cannot predict the future. But we can speculate on this and trying to be smart. That is why it is not burdened with this, but concentrates on quality companies which are “likely” to succeed regardless of current stock price movements!
There is another man who should be mentioned in this story. Benjamin Graham – is Buffett’s inspiration and favorite professor and mentor at Columbia University. He picked up a lot of “essence” from him and he made a huge impact on Buffett. We can say that Buffet continued his philosophy on investing and that he added some of his own spice along the way.
As in Tennis today, the “old team” is still waiting for young talent to replace them…