How to Invest Like Warren Buffett: Learn from the Best with New Gen
The magnate Warren Edward Buffett was born on August 30, 1930 in Omaha, Nebraska and many consider him to be the best investor in history, since he is the person who has earned the most money in the world of stock market investments. His fortune amounts to some 100,000 million dollars, only below men like Bill Gates, Elon Musk or Jeff Bezos.
Buffett developed from an early age an uncanny ability for calculation. At the age of 11, he bought his first six shares of Cities Service Preferred at $38 per share, which he would later sell for $40 each. A decision he later regretted as Cities Service soared to $200.
One of his most emblematic movements was in August 2020, through Berkshire, which earned him 2 billion dollars just 12 months after acquiring 5% of the Japanese firms: Itochu, Marubeni, Mitsubishi, Mitsui & Co and Sumitomo, for a value of close to 6 billion dollars, where the gain of more than 30% exceeded the 22% growth of the Tokyo Stock Price IndeX index.
In the early 40's, a young boy, son of a stockbroker in Omaha, Nebraska, barely 11 years old, after studying the daily stock quotes, bought his first shares at a price of $38 dollars per share.
Training in value investing
Warren Buffett entered the Wharton School of the University of Pennsylvania in 1947 and then moved to the University of Nebraska where he eventually graduated. He also completed a postgraduate degree at Columbia Business School, where he was a student of Benjamin Graham, writer of the book “The Intelligent Investor”, known as the “father of value investing“.
In this sense, he adopted from his mentor the concept of value investing, which he has used to achieve returns in excess of 20% per year. This method seeks stocks that are undervalued in the market or that are selling for less than their fair or intrinsic value.
This type of investment is based firstly on determining the real value of the company based on its cash flows, i.e. the money it will generate in the future. Once determined, it consists of buying shares at a time when they are at a bargain, that is, when the price at which they are sold on the stock market is less than their fair value. This occurs at two specific times, either because the market is in a state of generalized declines, or because the company is in a bad moment.
It should be noted that when investors find that the market price is significantly lower than the intrinsic value of a stock, they have a “margin of safety” or percentage cushion on their investment, which helps to protect it. Thus, the larger that cushion the greater the bargain and therefore the more willing the value investor will be to invest.
Rules of thumb
Buffett has stressed that the most important thing when it comes to investing is common sense and mastery of emotions, since, if you have done a good job of analysis, even if the prices of the acquired stock fall, you know that sooner or later the price of the shares of that company will tend towards its real value.
However, you have to bear in mind that every investment you make has to follow certain guidelines. In general, they have to be securities or companies:
- They must be simple and therefore perfectly understandable.
- They must be predictable, i.e. their earnings can be reliably predicted.
- With a high return on capital, which the company must achieve naturally and without excessive debt.
- With strong cash flow generation.
- Managed by people who seek to generate shareholder value and not just get rich.
Another point that the “Oracle of Omaha” always emphasizes is to have a long-term vision, which goes hand in hand with the ability to be patient, a quality super-exalted in value investors, especially Warren Buffett.
Finally, there are three basic rules that the tycoon never breaks:
- Never lose money.
- Never forget rule number 1.
- Don’t go into debt.
If you want to learn more about value investing or investing like the greats, contact an advisor.
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