Warren Buffett stock tips is the most sought after advice. If we can emulate the masters style of investing it will be perfect. Why Warren Buffett is considered as genius of stocks? He follows the concept of value investing. He practices it to near perfection. Warren Buffett stock tips that we seek should be the same that is followed by the master himself.
Before we see what investing strategy is followed by the master, let me give a small introduction of him. Warren Buffett is a 84 years old, American Investor. He is a Chairman of Berkshire Hathaway. Berkshire makes diversified investments in other companies. Warren Buffett is also among the top 3 richest people in world.
His net asset is worth $72.8 Billion Dollars as on May’2015. Berkshire Hathaway is 4th most valuable company in USA in terms of market capitalization. Recently in 2014, Berkshire Hathaway bought Duracell from P&G. As on date Berkshire’s biggest holding are in American Express ($13.23Bn), Coca Cola ($16.07Bn) & Wells Fargo ($23.35Bn). Education qualification of Buffett is Msc in Economics. Buffett has 3 children.
Buffett’s way of investing is value investing. Some might say that value investing is only about ‘buying low selling high’. But value investing has roots much deeper. Value investors know the concept of fundamental analysis like they know alphabets. While doing fundamental analysis, value investors analyze economy, sector and company in consideration.
Warren Buffett is Guru of all value investors of world. Warren Buffett has mastered value investing. His success is attributable to his ability to analyze fundamentals of company>. Common men can follow Warren Buffett stock tips and take advantage of value investing.
Combination of value investing & emotion control can guarantee success in stock investing. Following simple Warren Buffett stock tips discussed in this article 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 practice value investing basics we can hope to duplicate fraction of his success.
Waren Buffett stock tips 2015
(1) Practice frugality, avoid lavish spending
Before investing try to save as much as possible. Higher savings meas more cash available for investing in stocks. Save money in range of 30% of your monthly take home. Out of 30% allocate 10% to stock investing. Though it may sound simple but maintaining 30% savings month after month is not easy. Keeping liquid cash (10%) available will initiate the investing process. No saving means no money available for investing. Keeping 30% money stashed away every month is frugality. It is this frugal habit that makes a man rich. Knowing how to utilize money wisely is frugality. Frugal lifestyle combined with wise investing can transform ones financial position. People must become passionate about investing. I have seen people starting investment but ultimately the fizz went off. This is why Warren Buffett stock tips does not start with how to screen stocks. Stock screening will eventually happen but first people must learn to use money wisely. This starts with inculcating savings as a habit.
Warren Buffett is among the richest men in the world. But he still lives a modest, frugal life. He does not live in an lavish house. He drives his own car. Warren Buffett stock tips will ask us to use our income to create wealth. We do the opposite, we use our income to satisfy only spending needs. We spend out hard earned money on needless things. Asset accumulation should be the focus instead of spending money. Save to invest. Invest to buy assets. Accumulate assets to generate alternative source of income. Alternative income will give financial independence. Best income generating asset is dividend paying stocks.
(2) Avoid being a compulsive buyer of stocks
Compulsive buyer of stocks buy & sell stocks all the time. It is not necessary to buy and sell stocks always. Warren Buffett says that stock investors must have loads of patience . In stock investing, patience is the most important attribute. Stocks investors should be ready to wait very long for that right time buy and sell stocks. What is the right time? The right time is when quality stock are available at undervalued price levels. When stocks of great companies becomes undervalued, that is the moment to buy.
(3) Do not buy stocks which everyone is buying
Warren Buffett’s simplicity of investing in stocks has made him so successful. He keeps complications aside and invests with logic. A good logic can make more money that complicated jargon’s. Buffett invests in stocks more logically than mathematically. Warren Buffett stock tips are so simple that many ignore it like random talks. But in reality these tips are much more effective.
These tips may be very helpful for day traders. But long term investors can treat them as bible. Warren Buffett does not buy stock every day. He waits for the opportunity and then buy stocks. In normal market conditions good stocks trade at overvalued price levels. We should not touch these stocks. Even if the fundamentals are extremely strong, still they must be avoided. Check both – fundamentals and price valuations before buying a stock. People who buy stocks just because they have a good brand name. Big brand stocks are ones that everyone buys and sells. Stay away from these stocks. When so many people are interest in a stock, its market price will be overvalued. Needless to buy these stocks. It rarely happens that that big brand stocks trade at undervalued. But when it happens we must leave no stone unturned to grabs them. When big brand stocks become undervalued? Good stocks may become undervalued for following reasons:
- Stock Market Crash
- Investors fail to notice the stock
- Stocks brand name is not as big now
- Company is going through a bad phase
- Sector is which the stock belong is seeing policy paralysis from government
Stock market crash is ideal moment to grab big brand stocks. Stock market crash may happen ones in a decade. So we must have an eye for alternative stocks. In normal times we can buy these stocks instead of big brands. Look for stocks that is not attracting attention of many. Fundamentally strong companies attracting less attention should be the focus.
(4) Buy Stocks of Companies whose products are always in demand
Buy stocks of companies whose product are in wide & consistent demand. Products like aerated drinks or chocolates are liked by masses. Product like Disney Land force people to spend money, travel to see the spectacles inside. Peoples love is common for a few specific products. When we know that their demand will not fade with time it automatically becomes our preferred investment choice. As an investor we shall look for companies whose products are simple and recognizable. Once stocks of such companies are available at undervalued price levels, grab them.
(5) Use Your Own Methods to Evaluate Good Stocks
Warren Buffett analyzes his stocks by self. Learning to value stock is essential. Buying stocks without valuation, it is like shooting in dark. Buying stocks without knowing what you are buying is gambling. Stock investing is not gambling. It is a process where 90% is logic and 10% is mathematics. There is no space for guess work. The logic tells us to buy quality stocks at undervalued levels. Evaluation of stocks is done to judge its quality and value its price. Bad quality stocks available at undervalued price is not good. Good quality stocks available at overvalued levels is not good either. But good quality stock available at undervalued level is good. Stock evaluation may sound daunting but it is simple. By looking at companies last 10 years financial reports we can if company is of good quality. By looking at P/B, P/E, PEG, dividend yield etc one can estimate if stock is overpriced or under-priced.
(6) Always Buy Undervalued Stocks
Warren Buffett estimates intrinsic value of stock before investing. When market price of stock is below its intrinsic value its undervalued. Warren Buffett first checks the fundamental strength of company. He then estimates its intrinsic value. Knowledge of intrinsic value helps. It helps to maintaining the ‘margin of safety’. Intrinsic value is more commonly known as ‘true value’. Estimation of true value can be done by calculating ‘present value of all future cash flows’. While evaluating fundamentals of business, Buffett pays more attention to (a) return on equity, (b) operating margin, (c) and debt levels of company, (d) dividend history, (e) Earning growth. Do these analysis not on basis of only one year figures. Collecting last 5 to 10 years financial statements makes more sense. 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.