Blog Details


Investment Strategies of Mr. Warren Buffett


Mr. Warren Buffet is the CEO of Berkshire Hathaway and is worth at least $100.6 billion. As of 2021, he is the seventh wealthiest man in the world. As a result, there are some crucial things to learn about investing when you first begin, because not every investment generates cash flow. In addition, many successful entrepreneurs are excellent stock market investors because they understand that investing rather than saving allows them to grow their wealth. From his own experience, Warren Buffett has presented some investing rules and strategies for investors to make a good investment for long-term returns. So, if you are someone who is new to investing or is looking for some tips while doing the same, this may definitely help.

Beginning with, the two golden rules; according to Buffet, are: a) Never Lose Money and b) Never Forget Rule 1. And to support the same, Let us now take a look at the secret investment rules that he has revealed to us-

1. Never depend solely on one source of income-

He famously said, “If you don’t find a way to make money while you sleep, you will work until you die.’’ Here, Buffet has stated that one should never rely on a single source of income because diversifying one's income helps to maintain financial stability. So, if you already have a job, it makes sense to take on a part-time job, but Buffet has stated that investing your earnings will generate cash flow over time as a passive income.

2. Understand the difference between price & value –

Practically, a company’s stock prices may swing with investor’s sentiments but that doesn’t been that company is bad or its future cash flows will also be unstable. He follows the rule of buying stocks at a price below their intrinsic value & holding them until the price reflects the true value of the company.i.e., he firmly believes in Price is what you pay, Value is what you get. However, it is important to remember that just because a stock is inexpensive does not mean it is a good investment.

3. Select the appropriate news to focus on -

So Have you ever imagined a pandemic causing a worldwide lockdown and affecting the majority of countries? No, right? This is because none of these can be predicted with any certainty. As a result, valuable investment opportunities are said to arise as a result of market corrections or individual stocks that become bargains. But still, if none of the companies on your list match your investment goals, putting your money on hold is a better option than to invest just for the sake of investing during such times.

4. Invest as if you're buying the entire company -

As we know, equity stocks also give you an ownership in the company & therefore Mr. Buffet advises investors not to think of investments as ‘stocks’ but to think of buying a stock as buying an entire company. To put it another way, invest in a company because you want to own it, not because you want the stock to rise in value.

5. Buy & Hold Strategy -

We might have heard this a several times that Quality investments earn returns & grow exponentially over the time. And Perhaps, Warren Buffet is the strong believer of the same. 'If you're not willing to own a stock for ten years, don't even think about owning it for ten minutes,' he famously said. Essentially, he believes in investing rather than trading in the stock market, and he also believes that short-term volatility can affect stock prices, affecting a significant portion of your returns.

6. Sell off the holdings at the right time –

There may be times when the company's fundamentals no longer remain the same, i.e., the stock price of the company is affected due to internal factors rather than external factors & therefore it can be the right time to sell off that holding from your portfolio. With that, he also believes that successful investing entails picking good stocks at the right time and sticking with them as long as they continue to be good companies.

7. Never invest money into a company you don't understand –

Buffett's best investment advice is to avoid investing in businesses that you don't understand. Investing in something unknown can be extremely risky, so this investment rule necessitates a thorough understanding of your investment, as a bad investment can quickly wipe out your efforts and money.

8. Reinvest Your Profits-

Let me relate this with an example of Mr. Buffet himself. During high school, Buffett and his friend Pol bought a pinball machine to put in a barbershop. They made a lot of money, so they used the profits to buy more machines and put them in more stores. Finally, his friend sold the business, and Buffet began investing the proceeds in the stock market.

Therefore, if your investment returns are satisfactory; you should reinvest them to increase your income and accumulate significant wealth. Furthermore, many investors have increased their wealth by employing Buffett's investment strategy.

9. Watch Small Expenses-

Buffett always prefers to invest in companies run by people who think about the little things. He also, as is common practice, focuses on every single value of a business, and he once checked 500 sheets to see if the company owner was being defrauded & he actually was. Here, it isn't greed because business should always be conducted in a fair manner.

10. Analyze the Risks-

When you're growing up, it's natural to take risks. When it comes to investments, taking risks is also necessary. However, Warren Buffett believes that there are two major risks that investors should avoid at all costs. The first is, possibility of long-term capital impairment & the second is the risk of a low rate of return on investment.

So to summarize, these are some of his investing principles that may assist an investor in making more informed investment decisions. Let's take a look at his top ten holdings to see what we're talking about -

a) Apple(AAPL) – Talking about this one, It's no surprise that Apple is one of Warren Buffett's most valuable stock holdings. The business has a proven track record of high earnings, returns, and management techniques. It'll only be a matter of time before the latest iPhone makes its way into almost everyone's hands around the world.

b) Bank of America (BAC) – Investing in Bank stocks is probably Buffet’s favorite place to put his money in. Bank stocks pay out very generously to their stockholders during economic expansions. Also, to add in; recessions are unpleasant, but they only last a few months in comparison to years of economic expansion.

Since many banks profit from their customers, the BAC stands out in a few ways. It is very interest-sensitive, which means that those who invest in BAC will benefit the most from an increase in interest rates when compared to other banks. Furthermore, by encouraging customers to use online banking and merging its branches, BAC has significantly reduced its miscellaneous costs.

c) American Express(AXP) –  Buffet's investment in American Express is yet another example of his fondness for financial stocks. Buffet's stock holdings in American Express date back almost 28 years, making it the third-longest in his portfolio. The strategy, like that of the BAC, is to wait for economic prosperity and a boost in the global economy before collecting interest and credit card fees.

d) Coca-Cola(KO) – He's been a shareholder in this beverage for 33 years. Coca-Cola's growth may have slowed rather than accelerated, but its dominance in the beverage industry remains unchallenged. You can always find a bottle of Coca-Cola around the corner, no matter where you are in the world. The company sells more than just beverages and has a wide range of products.

e) Kraft Heinz(KHC) – This isn't one of Buffett's best investment deals, but it is still one of his best. However, the coronavirus pandemic has unexpectedly benefited Kraft Heinz. With the majority of people staying at home with their children and working, quick, easy-to-prepare meals became a necessity. Kraft Heinz products have proudly stood in grocery store aisles in such circumstances.

f) Verizon Communications (VZ) – Verizon is a telecommunications conglomerate with a global reach. They share a corporate part of the Dow Jones Industrial Average and have a strong holding in the telecommunications industry. (The Dow Jones Industrial Average is the most well-known share index in the USA). 

g) Moody’s Corp. (MCO) – Moody's Corporation is a financial and business services company based in the United States.

h) U.S. Bancorp (USB) – U.S. Bancorp is an American bank holding company situated in Minnesota, Delaware, and Minneapolis. It is the founding company of the US Bank National Association and is currently the fifth largest American banking institution.

i) DaVita HealthCare Partners (DVA) – This company provides outpatient services to those in need of Kidney dialysis. With nearly 2800 branches across the United States, it is the largest bank in the country. It has also expanded to ten additional countries. It has a market share of 37 percent in the dialysis market in the United States of America.

j) Chevron Corp (CVX) - Chevron is a multinational energy corporation. It was founded in the United States and is now headquartered in California, with offices in nearly 180 countries.

Overall, Mr. Buffett teaches that finding "wonderful companies" with "long-term value and fairly priced stock," as Buffett puts it, is the first step in replicating his investment strategy. The next step is to stop hesitating and begin investing.