I always get lots of questions about Warren Buffett’s stock portfolio, with these two questions as the most common:
- Why did Warren Buffett buy this stock?
- Why did Warren Buffett NOT buy this stock?
So what exactly constitutes the Warren Buffett Investment Strategy?
While the mind of the greatest investor till date is at times an enigma, the key principles of his investment strategy have stayed grounded for the last 5 decades or so.
The world’s greatest investor and one of the world’s wealthiest man remains a Value Investor, however his approach to Value Investing has clearly evolved over the years to differ from his late mentor – Professor Benjamin Graham.
The first Value investor – Benjamin Graham picked up businesses which were undervalued by their Book Value… which means that Graham would pick up the books of the business, plough through it in great detail to dig out information not apparent to the rest of the market. This gave Graham an edge by buying up businesses that owned more stuff than it’s trading price on Wall Street.
However, with the advent of the internet, information on businesses now are so freely available, this “edge” of having additional information may not be so apparent now!
So, the Warren Buffett Investment Strategy has evolved itself from an original “Grahamian” style to something that looks for value investing in high business quality. Warren Buffett uses his skills to assess a business’s competitive edge, enduring business strengths and capacity to grow, all this on top of management quality! He once mentioned his “favourite holding period is forever”. Now, this is vastly different from Benjamin Graham, who would sell off his business for a profit once it has been realised.
In short, Buffett is an investor who looks for high business quality to invest in. There are some out there who have alluded to him as a very “shrewd” deal-maker. Whatever you call him, Buffett is extremely intelligent and apt at assessing the true business potential of many businesses out there. He would buy up these businesses at undervalued prices and make a ton of money off them.
So why doesn’t the Warren Buffett Investment Strategy buy up some of the great businesses that you see out there? Well, with Berkshire’s current fund size, Buffett and his team need to be extremely discrete about what they buy. To make an impact to Berkshire’s portfolio, the total value of the shares transacted would be worth at least hundreds of millions to billions. Some smaller companies would be completely bought up in an instant to fulfil this criteria! Because of that, not all are possible purchase targets.
As retail individual investors, we can use his strategies with significant advantage, by screening out business with strong durable competitive advantages and stellar management
. In fact, Value Investing College’s programmes are officially endorsed by Ms. Mary Buffett, the best-selling author of the Buffetology series.
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