Stock investing tips of Warren Buffett is the most sought-after investment advice across the globe. What has made Warren Buffett what he is today? Warren Buffett practices the concepts of value investing to near perfection. In this article we will see stock investing tips of Warren Buffett that most likely is followed by the master himself. Warren Buffett is a 83 years old, American Investor. He is a Chairman of Berkshire Hathaway. Berkshire makes diversified investments in other companies. But to understand the paradox of Buffett’s way of investing, we must take the difficult route of value investing. Practice of value investing is not as simple as buying low and selling high. Value investing asks investors to learn the whole concept of fundamental analysis. In fundamental analysis we need to study the whole economy, sector and company in consideration. This is not easy as as it sounds. Buffett is so successful because he takes his investing decision considering all fundamentals in which a company operates.
To give my readers a sense of optimism, I confirm that anyone can master value investing. Just follow stock investing tips of Warren Buffett. But after what we saw in stock market crash of 2008/2009, we must also learn to control our emotions. A combination of value investing skills and emotion control can take us to the top. It is compulsory for investors to learn to value stocks. But valuing stocks is not as easy as one may think. Following these simple stock investing tips of Warren Buffett will certainly help. Warren Buffett’s ability to find true value of stocks has made him a master. We may not value stocks like Buffett, but if we follow his stock investment tips we can hope to duplicate at least part of his success. Stock investing tips of Warren Buffett is discussed in this article which will help us gain insights into the wisdom of this master investor:
Stock Investing Tips (1): Live A Modest Life. Avoid Lavish Spending.
The most basic stock investing advice will be to save as much as possible. Higher savings gives investors handful of money to invest in stocks. At least 25% of income shall be saved by each individual for the purpose of investment. Though it may sound very simplistic but maintaing 25% savings level is not easy. Handful saving is a starting point of all investing process. If we are not saving we will have no money to invest in stocks. But why we are so passionate about investing? By Investing, we are creating a new source of income. This form of investing philosophy is called as income investing. The more we invest, the more will be investment income. As our investment income grows we will have more money in our hand. More money in hand will help us save more. This will become a never ending cycle of increasing income and increasing savings.
Though Warren Buffett is among the richest men in the world but he still lives a modest life. He lives in a decent house and still drives his own car. Buffett believes that majority of income shall be used to create wealth. It shall not be spent on needless things. In the process of investing our money, our focus shall be to accumulate good assets. More will be the accumulated assets, faster we will see financial independence. The best stock investing tips of Warren Buffett is to save money and use it to but income generating assets. For a common man a simple example of good asset is value stocks. Lets chalk out a strategy to identify and buy value stocks.
Stock Investing Tips (2): Avoid being a Compulsive Buyer of Stocks. Buy only undervalued stocks
It is not necessary to continue buying and selling stocks always. This is the most effective stock investing tip of Warren Buffett. It is also very east to implement for a common man. Warren Buffett believes that stock investors shall show loads of patience. In order to see success in stock investment, patience is the most important attribute. A good value investors should be ready to wait very-long for that right time to invest money. The right time as per Buffett is that moment, when top quality stock are available at undervalued price levels. When great companies stocks becomes undervalued this is the moment to buy them. Buffett asks us to buy only undervalued assets (stocks).
Stock Investing Tips (3): Do not Buy Those Stocks which Everyone Else is Buying
The simplicity with which Warren Buffett practice investing has made him like god of stocks. When Warren Buffett invest in stocks he does it more logically than mathematically. Stock investing tips of Warren Buffett are so simple that, many ignore it like random-talks. But let me tell you, they are the most effective stock investment theories.
Its true that stock advice of Warren Buffett does not help everyone. They are more useful for long term investors. Day traders may find his stock advice useless. Warren Buffett does not buy stock every day. He waits for the opportunity and then buy stocks. In normal market conditions, majority of good stocks trade at overvalued price levels. Warren Buffett will not touch these stocks even though they exhibit strong fundamentals. Warren Buffett will check both fundamentals and valuation before buying one. Majority of people who invests in stocks continues to buy stocks just because they have a good brand name. Warren Buffett stays away from those stocks that everyone is buying. When so many people are interest in a stock, it will make its price overvalued. It happens rarely, that good stocks become undervalued. But when it happens that is the moment when Buffett grabs them. Good stocks may become undervalued for few reasons like:
- Stock Market Crash
- Investors fail to notice the stock
- Stocks brand name is not as big
- Company is going through a bad phase
- Sector is which the stock belong is seeing policy paralysis from government
Stock market collapse is a dream moments to grab quality stocks. For sure stock market collapse does happen regularly. So we must have an eye for alternative hints to identify undervalued stocks even in normal times. The next best alternative is to look for stocks that is not attracting attention of many. When everyone starts buying a particular stock its market price is bound to go up and become overvalued. So, when we are buying a stock which is not attracting lot of attention, we shall first check its fundamentals.
Stock Investing Tips (4): Buy Stocks of Companies which has Simple & Recognizable Products and Services
We shall buy stocks of companies whose product or services are understandable to all. Understanding the business process is important before buying its stock. A company which is making aerated drinks or chocolates are favourite of masses. A company which has a product like Disney Land will be remembered by masses. We all have a common love for a few specific products. We are aware their demand will not fade in our lifetime. As an investor we shall look for companies whose products are simple and recognizable by masses. Once stocks of such companies are available at undervalued price levels, investors must grab it with open arms.
Stock Investingt Tips (5): Use Your Own Methods to Evaluate Good Stocks
This is a backbone of all stock investing tips of Warren Buffett. Learning to value stock is essential. If we are buying stocks without valuation, it is like shooting in dark. Stock investing is not gambling. It is a process where 90% is logic and 10% is mathematics. Stock valuation asks investors to use some mathematical skills. Though stock valuation may sound daunting but it is simple. This is where Warren Buffett overshadows other investors. The way Warren Buffett does stock analysis is unparalleled:
Fundamental Analysis of Business – By doing this he first identifies good stocks
Stock Valuation – He applies his stock valuation theories to check if good stocks are trading at undervalued price levels or not.
A combination of fundamentally strong stock at good valuation makes it a good buy for Warren Buffett.
In the process of doing the stock valuation, Buffett estimates its intrinsic value. We as prospective investor must learn to estimate intrinsic value of stocks. Comparing intrinsic value and current market price is essential before investing. This step will highlight that whether stock is worth buying or not. Only undervalued stocks shall be bought by investors. When current market price of stock is lower than its intrinsic value it is said to be trading at undervalued price levels.
Stock Investment Tips (6): Always Buy Undervalued Stocks
Warren Buffett estimates intrinsic value of stock before investing. If the market price of stock is below its intrinsic value then it can be termed as undervalued. Warren Buffett first checks the fundamental strength of company and then estimates its intrinsic value. Knowledge of intrinsic value helps Buffett to check if market price is overvalued or undervalued. Warren Buffett purchases undervalued stocks by maintaining a ‘margin of safety’.
When we talk about intrinsic value, is nothing but estimation of true value of stocks. Estimation of true value can be done by calculating present value of all future cash flows. It is a guess that Buffett pays more attention to (a) return on equity, (b) operating margin, (c) and debt levels of company, (d) dividend history, (e) Earning growth etc in estimation. Warren Buffett does not do analysis of stocks on basis of only one year figures. He works on figures of last five to ten years as it apprears in companies financial statements. Important indicators for identifying undervalued stocks are these:
Stock Investment Tips (7): Buy Stocks of Companies doing Monopoly Business
Such companies are becoming less and less in today’s world, but still there some. There are companies who can manipulate their selling price at-will without negatively effecting their sales turnover. Few examples of such monopoly products are Microsoft’s Windows OS, Airbus A380, Coke’s Cocal Cola, Apple’s I-phone, KFC’s Fried Chickens and likes. It may be difficult to locate too many of Microsoft’s and Apple’s today. But careful study will show us companies that enjoys a definite competitive advantage over their competitors. Companies that carry competitive advantage is said to carry competitive moat. Stock investment tips of Warren Buffett asks us to buy stock of companies with high MOAT. In order to identify companies with wide economic moat following are indicators are important to note:
The wider the moat, the larger and more sustainable the competitive advantage. By having a well-known brand name, pricing power and a large portion of market demand, a company with a wide moat possesses characteristics that act as barriers against other companies wanting to enter into the industry.
Stock Investment Tips (8): Only Confused People Diversify Their Investments
If you will ask Warren Buffett about investment diversification he will give you a glare eyes. He believes that investors shall be ready to wait indefinitely till stocks prices of fundamentally strong companies become undervalued. Till such time investors shall save their earnings. When the time comes, they shall not fall short of money for stock investing. Investment diversification is only for those impatient investors who like to invest each month as a matter of habit.
Principally Warren Buffett is not against diversification of assets. Any asset that is undervalued shall be purchased. But people do not practice diversification like this. People prefers to buy index funds, diversified equity funds, gold linked ETF’s etc, why? The take this step because they do not know stock investment. For such people investment diversification (index funds, ETF is good). But for people who knows how to value stocks shall stay away from this theory.
A value investor shall practice investment diversification for sure. They shall continue to buy value stocks but in parallel they can also invest in alternative options. The can buy undervalued real estate property. They can buy gold/silver at undervalued prices. Investing in different asset class is real investment diversification. But just because I have 10 auto stocks in my portfolio, so I should buy steel stocks is not a correct diversification strategy.
Stock Investment Tips (9): Buy Stock to Hold it for Life
Holding stock for life does not mean that one shall go on holding a stock even if its showing weak fundamentals. Among important stock investment tips, periodic evaluation of portfolio is most important. If the company is loosing its competitive edge or its fundamental superiority, then shelving it better than holding. What Buffett means when he says that ‘hold it forever’ is different. Before one buys stock, it should be evaluated with an objective of holding it forever. Evaluating stocks with this mind-frame keeps investors cautious. One will not like to include fundamentally average stocks if idea is to hold it for life.
Stock Investment Tips (10): Invest Money not to make More Money
There are people who enter stock market for making quick bucks. Warren Buffet will call such people as fools. Stock investing is not for making quick bucks. Investment is a long-term money making mechanism. The term can be so long term that some may even loose the fizz for making money. Then what can be the motivation to practice long term investing? The drive for long term investing can we wealth creation to attain financially independence. Money making will automatically happen once we start the process of wealth creation with objective of financial independence.
Stock Holding of Warren Buffett
|1||Exxon Mobil Corporation||3,449,290.00|
|2||DaVita HealthCare Partners Inc||1,789,320.00|
|4||Suncor Energy Inc||644,396.00|
|5||Lee Enterprises Inc.||235.00|
|6||United Parcel Service Inc (UPS)||5,427.00|
|7||Kraft Foods Group Inc||10,111.00|
|8||General Electric Co||14,069.00|
|9||Mondelez International Inc||18,161.00|
|10||DISH Network Corp||24,635.00|
|11||Johnson & Johnson||28,356.00|
|12||Media General Inc.||66,255.00|
|13||Verisk Analytics, Inc.||101,561.00|
|18||Deere & Co||323,832.00|
|19||Wabco Holdings Incorporated||343,471.00|
|20||Precision Castparts Corp.||449,330.00|
The best stock investment tips of Warren Buffett is focused on buying quality stocks at undervalued price levels. But if one is investing for only one year, even quality undervalued stocks will not perform. Stock investing demands long term holding. If one wants to make a mark in stock market their investment cycle should be of 5 years instead of smaller horizons.