Want to invest like Warren Buffett? How often do you hear that line?
Most people really do not have the billions of dollars that Warren Buffett has, which gives the billionaire investor a major advantage that allows him to find and acquire deals not available to average people, just like buying Burlington Northern Santa Fe railroad in 2009. And yet again, his most recent letter to shareholders tells them just how simple the keys to his overall success are.
We’re not saying that they are simple to implement. Common sense, grit and diligence are prerequisites to pulling off any kind of long-term winning investment portfolio. Buffett is obviously doing something correctly, and doing so on a consistent basis. According to information gathered from Forbes, Warren Buffett is the second richest person in America. His estimated net worth at this time is $58.5 billion. Bill Gates is the number one richest American.
When an individual takes his $100 and a total of $100,000 in overall capital, and manages to spend 50 years building a $309 billion empire, mainly through investing, pay attention to the information that he shares. There are many biographies out there showing how Buffett began in his early years and stuck with it.
He recently released the 2013 annual letter to shareholders that goes out to the owners of Berkshire Hathaway holding company. One of the major takeaways from this letter is Buffett’s optimism about the United States economy. He mentions that he feels that “a bet on ever rising US prosperity to be very close to a sure thing.”
To get more specific, how does Mr. Buffett deliver such amazing returns on investment?
- Investing well is the first thing that you should take away from this shareholder letter. You have to start out by understanding business fundamentals, performance and analysis. As well, ignore all of the information and graphics in regards to market performance and charting, since they are sold by companies that tend to take advantage of those who are uninformed.
- If you do not have the knowledge, patience or time needed to properly research individual companies, a cost-effective yet simple approach is to buy into low-cost index funds. It is a simple alternative to investing in stocks by picking individual companies, and it’s a great way to gain the exposure and diversification in the equity markets through using simple instruments of investing.
- Charlie Munger and Warren Buffett particularly think about consistent results over a long period of time, in particular more than five years. Businesses that have the ability to continuously grow profits and revenue are those that you want to invest in. But the caveat is that many times, you do not want too extreme of growth rates when looking at a business. If they are growing much too quickly, you have to wonder how they will be able to sustain this performance over the long-term.
- It’s not in your best interest to pay attention to any of the overall negative market sentiment, short-term market predictions or macroeconomics for that matter. It’s always necessary to ignore the background noise, because it allows you to pay attractive prices for quality assets. You have to pay close attention to the stocks that you are buying, and not all of the noise and other things going on around you at the time.
- One of the big mistakes that many investors make – according to Warren Buffett – is the constant activity of buying and selling stocks on a frequent basis. If you are buying into a high-quality company, let the strength of the business and their overall growth reward you. They will do so through buying back stock, dividend increases, buying other businesses to expand the franchise, plus internal growth within the existing framework. It is not necessary to have to continuously trade your holdings in order to have success as an investor. In fact, you’re spending tons of money in trading fees that you could have otherwise kept for yourself.
- When reading any one of Warren Buffett’s letters to shareholders, it’s quite easy to see how helpful and pleasant he is toward readers and shareholders. He tries his hardest to acquire good deals from the companies that he owns, he gives lodging and travel advice for those looking for more affordable things, and in general he really goes out of his way to help people.
You may agree with his political views or you may not – recently he urged Congress to raise the taxes paid by the wealthy, as an example – and also think he received tremendous benefits from inside deals that took place when the market experienced serious problems back in 2008. Wall Street was definitely on the brink of disaster back then, but he invested $5 billion in Goldman Sachs in order to help the firm shore things up after the Lehman Brothers collapse. It was a very favorable deal for Warren Buffett, and overall he reaped a $2 billion reward from this investment. Most of us do not have this type of investment transaction within our reach.
There’s no question of Buffett’s accomplishments as an investor. They are unparalleled and quite difficult to match.