Monday, March 6, 2017

The investment philosophy of Buffett


First, make money instead of losing money. This is sentence is often quoted by Buffett: "The first criterion of investment is not to lose money; the second criterion is never to forget the first." Because if you invest a dollar, lost 50 dollars Points, only half of the money on hand, unless there are 100% of the proceeds, otherwise it is difficult to return to the starting point. Buffett's biggest achievement was between 1965 and 2006, after three bears, and his Berkshire Hathaway only had a loss in a year (2001).
Second, do not be deceived. Buffett likes to use equity returns to measure the profitability of enterprises. The return on equity is calculated by dividing the company's net income by the share capital of the shareholders. It measures the percentage of the company's profit as shareholder's capital and can more effectively reflect the company's earnings growth. According to his value investment principle, the company's equity return rate should be no less than 15%. Shares of Coca-Cola have more than 30% of the shares held by Buffett, and 37% of American Express."
Third, depends on the future. Buffett called by people "Omaha's Prophet", because he always consciously to identify whether the company has a good future development, can’t continue in the next 25 years to succeed. Buffett often said, through the window to look forward, can’t see the rearview mirror. One way to predict the future of the company is to calculate how much the company expects future cash receipts today. This is the way Buffett assesses the company's intrinsic value. Then he will look for companies that are seriously deviating from this value and sold at low prices.
Fourth, invest companies that insist on investing in a huge "barrier" to their competitors. Predict that there will be risks in the future, so Buffett favors companies that can make a huge "economic barrier" to their competitors. This does not necessarily mean that the company he invests must be exclusive of a product or a market. For example, Coca-Cola has never been a competitor. But Buffett is always looking for companies that have a long-term competitive advantage and make him predict the value of the company more secure. In the late 1990s, one reason Buffett was reluctant to invest in technology stocks was that he could not see which company had enough long-term competitive advantage.
Five, gamble on the big bet. On the vast majority of value investors conservative nature, but Buffett is not. He invested $ 62 billion in the stock market on 45 stocks. His investment strategy is even more radical than this figure. In his portfolio, the top 10 stocks accounted for 90% of the total investment. "This is in line with Buffett's investment philosophy," said Justin Fuller, senior stock analyst at Morningstar. "Do not hesitate, why do not you invest money on your favorite investment?"

Six, have to wait patiently. If you change hands in the stock market, then it may miss the opportunity. Buffett's principle is: do not frequently change hands, until there is a good investment object before the shot. Buffett often quoted legendary baseball batsman Ted Williams as saying: "To be a good batsman, you have to have a good shot to play." If there is no good investment object, then he would rather hold cash. According to Morningstar, cash in Berkshire Hathaway's investment ratio accounted for more than 18%, while most fund companies only 4% of the cash.

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