How to Pick Stocks Like Warren Buffett
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By: Timothy Vick, Barrette Whitener, et al.
Purchased At: $119.89 (3 used & new offers)
How to Pick Stocks Like Warren Buffett sticks to the basics: how Buffett continually finds bargain stocks passed over by others. Written by an actual financial analyst who uses Buffett's strategies professionally, this tactical how-to book will provide you with the comprehensive financial tools and information you need.
There are so many theories of investment but few have the track record of the Buffett way. Many investment theories also suck. Most so called investment advisers make recommendations that are mostly to their benefit, not yours.
I have followed the Buffett method in my own portfolio to my benefit and when I have been seduced by a "sure thing" that was not consistent with the Buffet method I have regretted it. I read this book some years back and purchased one recently as a gift for a friend.
This is certainly not a get rich quick scheme but is a method to preserve and grow wealth. There is much power in the growth of money with compound interest.
Many invest in the share market yet few produce returns that even match the S&P 500.
If you can't develop the skill to pick your own stocks Warren recommends you invest in an S&P 500 index fund that are consistently in the top quartile of stocks.
As Buffett is quoted as saying in the book, "To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well taught courses - How to Value a Business, and How to Think About Market Prices."
"How To Pick Stocks Like Warren Buffett" does detail effectively, in easy-to-understand language, Buffett's methodology in analyzing and evaluating businesses and attitudes about market prices, as well as the investment decision-making process, and philosophy about developing good investment habits.
Buffett's rules and methods for investment success are carefully outlined, including the importance of developing a mathematical mind, using a buy-and-hold strategy for companies with strong franchises, growing book value and return on equity, using the magic "15 Percent Rule", comparing stocks to bonds, avoiding losses, and stringing small gains together with takeovers.
"How To Pick Stocks Like Warren Buffett" contains charts and case studies with pertinent and contemporary examples, including studies of technology companies. A chapter, "Your Competitive Advantage Over Buffett - The Internet", details several web sites that provide information, research and investment tools for value-oriented investors.
This book is relevant for value conscious investors who wish to formulate an intelligent and consistent approach to investment management.
Buffet showed an interest in earning money at a very early age. He did a great deal of experimenting with different investment techniques. Mathematics was of particular interest and very useful in analyzing businesses and possible investments. The magic of compound interest was particularly intriguing and he realized almost immediately that every dollar he didn't spend would compound in the future to a much greater amount. With this in mind he developed an aversion to spending money that could otherwise be invested. He was captivated with the book “The Intelligent Investor” by Benjamin Graham, and was impressed enough that he decided to study under Graham at the Columbia business school. He and Graham argued different points in class. Buffet wound up working for Graham for a short time, then started his own investment firm.
One technique Buffet uses is to compare all possible investments with long-term bonds especially treasuries. The long term treasuries are considered the safest investments (not accounting for inflation) so if you can get 3% on long term treasury bonds any other investment must have a better return since they will be riskier. He then uses the long term bond rate say 3% as the discount rate. The discount rate is supposed to take into account the volatility of the investments being studied as a proxy for risk. So if an investment is considered much riskier than treasury bonds you select a higher discount rate say 15%. Buffet makes this easier for himself by primarily looking at companies that have long-term growth rates that are rising and vary little. The problem for ordinary investors is that much business and investment expertise goes into selecting the appropriate discount rate to account for growth, volatility and risk. This has proved to be virtually impossible to do consistently even for professional investors.
Buffet is generally looking for a company that is selling well below its’ calculated intrinsic value. Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life. The intrinsic value is very difficult to calculate precisely since it depends on many factors, but in a very rough way over long periods of time changes in the book value of the co Gladmpany gives you a general idea of changes in its intrinsic value. There can, however, be large discrepancies between the two, and even larger differences with the stock market price. He believes in having a margin of safety by purchasing a company well below its’ intrinsic value when possible. This is most likely during significant market downturns.
There is some correlation between the long term growth of the book value and the return on equity, ROE, of the company and the company stock price. There is also a lot of fluctuation due to stock buybacks, the normal business cycle, and companies playing games with their numbers to look good. Generally increasing earnings, and return on equity, are good for the future stock price. But there are many factors such as buying back the company stock, borrowing more, etc., that could affect the future price of a stock. Buffet is usually looking for big stable companies to buy such as Coca-Cola, Procter& Gamble, Wells Fargo that have a long history of stable, increasing earnings and paying increasing dividends.
The next step is not to lose. This is easier said than done since the price of stocks obviously fluctuate quite a bit. He studies many companies carefully to find those that will do well in the long-term. To minimize the chances of a loss he waits to get the best price he can with the intention of holding forever. Over the years he has shown a preference for purchasing whole companies with the owners staying on to actually run the business itself. His chief function seems to be to allocate the income streams from many companies he is associated with into new and profitable businesses and the expansions of existing businesses. Since you coninue to discuss purchasing stocks, this might be be better at the end or before the next to the last paragraph. )
Several times in his long investing career he announced that he couldn't find any worthwhile stocks to invest as in during 1969, 1987, 2001, and 2008. Other times he announced he was like a kid in the candy store and there were many stocks he wanted to buy in 1974, 1982, 2002 and 2009. He uses many criteria to choose stocks to buy. Apparently when most of his criteria are showing that stocks are not a good buy he considers it may be a good time to think about selling. In other words he does the opposite of the average investor. He sells when everything is looking great and profits abound, he buys when it looks like the end of the financial world. This is quite easy to say, but quite difficult to do in practice.
Many other techniques are used to maximize profit such as arbitrage, especially in takeovers, options -both calls and puts, and the futures market. Buffett uses these techniques to improve his chances of getting exceptional long-term results. All these require some special knowledge and good timing. The stability and financial power of Berkshire have been used to get very good deals on convertible securities that ordinary investors don't have a chance of getting.
Craigslist with this piece of s***Buffett has several suggestions for better investment results. One is to consider a stock as an actual business and research as if you were going to be the owner for the next decade or longer. Another is to realize the business value and the stock price frequently show a large difference. It is best to purchase the stock when its price is depressed, which is most likely when entire market is in free fall. Look at stock fluctuations as your friend rather than your enemy. Try to buy a stock when there's a great deal of pessimism in its area and the price is depressed. Sell a stock when there's a great deal of euphoria and the price seems like it will climb forever. Finally always look for a margin of safety, some advantage that will make price fluctuations less severe.
Teil 1 enthält eine Einführung.
Teil 2 "Developing a mathematical mind" und Teil 3 "Analyzing companies like Buffett" erklären, wie man über das Gewinnwachstum einer Aktie ihren Kaufpreis errechnen kann, den man benötigt, um die persönlich angepeilte Anlagerendite zu erreichen. Ist ein wenig trockener, vielleicht habe ich deswegen hier eine längere Lesepause gemacht und nicht alles verstanden. Mit einem Tabellenkalkulationsprogramm zur Hand dürfte es aber nicht komplexer, als eine YTM-Berechnung bei Bonds sein. Außerdem wird leicht verständlich erklärt, welche Zahlen wichtig sind.
Teil 4 "Avoiding Losses" erklärt, warum Trading so selten langfristig was bringt und erzählt über die größten Timing-Erfolge von Buffett sowie über seine Arbitrage-Geschäfte. Auch der Mythos des "Kaufen und liegen lassen" wird hier enttront, so daß man aber danach (und nach vorherigen Teilen) klar erkennen kann, wann man halten statt traden muß und wann man verkaufen sollte statt halten.
Teil 5. "Chicken Soup" ist der Grund für die 5 Sterne für das Buch. Es enthält in einer komprimierten Form Verhaltensregel für Investoren.
Nach dem Lesen dieses Buches kann ich sehr genau die Verhaltensunterschiede zwischen Tradern und Investoren erkennen und verstehe so jetzt viel besser, warum z.B. Trader in der gleichen Situation völlig anders reagieren und verkaufen mit Hochdruck dort, wo Investoren sich auf eine Schnäppchenjagd machen. Das Buch hat mein eigenes Profil deutlich geschärft. So kann ich jetzt nach den gemachten Hausaufgaben viel gelassener das Treiben der Trader an der Börse ansehen und schaue mir meine Werte nur noch wöchentlich an. Klares Profil mit einem klaren Regelwerk bringen mehr Ruhe und geringere Handelskosten. Es ist nahezu witzig zu sehen, wie die Werte trotz aller Indikatoren und dem lebhaften Treiben der Trader doch dorthin kommen, wo sie hingehören.