A Look At Warren Buffett's Investment Principles

Armaan Chawla
Jul 22, 2019   •  12 views

Hailed as the oracle of Omaha, Warren Buffett is the C.E.O of Berkshire Hathaway and is considered to be one of the greatest investors to have ever lived. Buffett is a big believer in Value Investing, i.e. to find and purchase stocks which are currently values less than their intrinsic or book value. Buffett credits most of his accomplishments to his professor Benjamin Graham and claims that Graham’s book, “The Intelligent Investor” is the greatest investing book ever written.

With unbelievable success, many have been curious as to what strategies Buffett employs or what Buffett’s views are when investing in companies. We will now be looking at some of the key aspects which explain Buffett’s foremost views when looking at a company.

1) Economic Moats

“A good business is like a strong castle with a deep moat around it. I want sharks in the moat. I want it untouchable.”

Buffett insists that one of the primary factors that “Academics” about the stock market forget to pay due dividend to is the moat of a business. A moat refers to a Business’ competitive advantage, i.e. a special quality or asset of the business the other businesses cannot replicate. This moat is one of the reasons Buffett chose not to invest in blue chip stocks like IBM earlier in his career, saving him a lot of money.

2) Invest in what you understand

Buffett, like legendary Mutual Fund investor Peter Lynch, is a form advocate in investing in stocks which you can comprehend. While it may look appealing to invest in a stock with a low P/E ratio or solid fundamentals, Buffett claims that having an understanding of how the business works and operates is crucial to understanding a company’s intrinsic value.

3)Hold for the long term

“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market”

. Buffett claims that the market is a place where patience profits from impatience and believes in holding investments for the long term. If a company is a solid one and has met all your criteria, then a momentary fall shouldn’t be enough to waver your confidence in it.

4)Always have Cash

You never know when your perfect company might suddenly come up and be ready to take investments. If none of the current stocks look appealing, then that’s fine. It’s better to bide your time and make a solid investment than invest in a stock you aren’t 100 % sure about.

These are just some of the anecdotes of the Oracle of Omaha to keep in mind next time you find what might be your next winning stock.