Yahoo Finance I’m a Value Investor: I Follow These 4 Insights From Warren Buffett on Wealth Building
Even the most casual investor is familiar with Warren Buffett. The so-called Oracle of Omaha is estimated to be worth at least $130 billion and is widely considered one of the most — if not the most — successful investors ever. His holding company Berkshire Hathaway has substantial stakes in a variety of businesses ranging from Apple to Kraft Heinz Co. to American Express.
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In an investing career that spans eight decades, Buffett has relied heavily on the strategy of value investing, a now widespread school of thought adopted by investors seeking to emulate his vast success.
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What Is Value Investing?
Put simply, value investors make it their job to locate and invest in publicly traded companies they think the rest of the market is sleeping on. As a strategy, value investing relies on scrutinizing the fundamentals of a given company in the hopes of finding opportunities where market variations are out of sync with the true potential of a given offering.
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Buffett’s Insights for Prospective Value Investors
Gary Mishuris, managing partner and chief investment officer of Silver Ring Value Partners, employs a value strategy when developing advice for his own clients. In his Substack, Behavioral Value Investor, he offers a number of key tidbits he’s gleaned from Warren Buffett over his years of following the investor closely.
Think Long Term
When Mishuris first encountered Buffett in 2002 and asked him what he looks for in a potential investment, Buffett “patiently explained that the first thing he thinks about is whether he can approximately estimate the key economic variables for the business 10+ years out. If he can’t, he passes right away.”
It’s a simple piece of advice, but one that carries with it a larger perspective on investments: It’s worth the time and effort to stick with a given company you can see performing well far into the future.
Hold Out for True Bargains
Mishuris cites one of Buffett’s most famous quotes: “I would rather buy a great business at a fair price than a fair business at a great price.” In reality, however, Mishuris thinks this understates Buffett’s actual strategy at Berkshire Hathaway.
Rather, he argues that if you look at Buffett’s holdings over the years, the pattern that emerges isn’t of someone who buys at a fair price but of someone who buys at a steep, steep bargain. In other words, focus on a few prospects that offer the highest rate of return possible instead of a larger number of businesses that show promise.
Know the Market Will Always Be Manic
Of course the stock market changes over time, both in terms of its overall makeup and the way the market itself operates. But Buffett argues “[t]hough the stock market is massively larger than it was in our early years, today’s active participants are neither more emotionally stable nor better taught than when I was in school.”
From this, Mishuris gleans that though technology has improved, human nature is human nature. Bubbles and crashes will happen, both due to the inefficiencies of human market analysis. Individual investment strategy, therefore, shouldn’t rely on hype or fear but should stick to the fundamentals over the long term to achieve sustainable success.
Find Big Wins, Avoid Long-Term Losses
Mishuris points out that “[l]ong-term winners outperform the market spectacularly over decades.” By the same token, “avoiding big permanent losses of capital is more than enough to lead to a great investment record.”
The overall wisdom from both of these extremes is essentially: Don’t sweat the small stuff.
The governing ethos of the value investor’s creed is to find big winners, stay away from long-term losers and not worry so much about what happens in between. Investments that produce modest gains won’t produce as much in the long run as the few that do very well and investments that generate some losses aren’t worth dwelling over as long as they’re not long-term losers.
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This article originally appeared on GOBankingRates.com: I’m a Value Investor: I Follow These 4 Insights From Warren Buffett on Wealth Building
