Warren Buffett’s strategies on investing are to find companies that you trust, believe in and understand the business model.
If not, walk away now. One must learn to be patient, to wait for these stock prices to fall to value prices, and then hold on the stock for the long term at least 10 years, if not 20 years or even 30 years. Buffet shares the view the best way to avoid capital gains taxes is to hold them on the stocks for an extremely long time if not indefinite.
What if you don’t know of any of these companies, what do you do then?
Well, Warren Buffet openly releases his investment choices each year which companies that his company Berkshire Hathaway invests into. This will make the financial news, the local business section of your newspaper. If you can’t think like a Warren Buffet just follows his choices.
Or according to Buffet, it is better to have 10 quality “Great” stocks than hundreds of average stocks. Now, if you don’t have the personality or skills to truly buy low and sell high, what should you do? Warren Buffet states you are best to buy a passive fund or Index fund rather.
Still in the dark? Here are some recommend books on Warren Buffet:
- The Tao of Warren Buffet Mary Buffet and David Clark
- Warren Buffet and the interpretation of financial statements Mary Buffet and David Clark
- Buffettology: Mary Buffet & David Clark
The easy way to meet the S&P 500 is to buy in a low-cost passive fund that mirrors the S&P 500.
The easiest way is to use cost averaging, which simply means buying into a mutual fund(s), every pay period – once a month, or once a quarter. The idea behind these strategies is that you will be placed in an automatic system that will buy mutual funds at the peek and the bottom of the market to avoid emotional buying or selling.
How do you out peace the S&P 500?
It is, first, to not purchase high cost managed mutual funds, and secondly to follow the advice of Joel Greenblatt which is a Professor at Columbia University and former fund manager.
He states in his book The Big Secret for the Small Investor: The Shortest Route to Long-Term Investment Success that most of the top funds manager at one time was at the bottom. And there is no way to predict who will be the next Warren Buffet.
He has developed a system of value index mutual funds based on the S&P 500 that are value based and are a better way to buy low and sell high. He states that the problem with the S&P 500 is how the system to purchase is based on capitalization. Meaning that the top stock will have the highest weight, and the one ranked second will have the next highest value and so on and so on.
Joel Greenblatt believes that a buying 1/500 of each stock, or one based on dividends, or gross sales would be a better system then what we have today. And it can produce 1-2% better than the S&P 500 and even better than some fund managers. On his website, he gives the mutual funds symbols that he recommends at www.valueweightedindex.com.
The next strategy is to have the greatest diversification of your stocks, bonds, and international stock markets.
It’s not just investing in the top 500 US stocks, but in the larger cap, mid cap and small cap stocks in Wilshire 5000 that encompasses the entire US stock market. This was developed by Burton Gordon Malkiel – a Princeton professor in his book The Random Walk Guide to Investing: ten rules for financial success states this is the way to the greatest return.
All these strategies are a complete contradiction with each other, but each one can be used for different personality styles and risk tolerances.
The question one needs to ask is what ideology fits me the best? Am I willing to send a lot of time, some time, or no time reaching mutual funds, stock, and balance sheets?
- It is clear the Warren Buffet is the riskiest and the one that will gain the best returns.
- Joel is little less complex, and invest value will give you better returns over aggressive growth, over the longer term.
- Malkiel will give you a chance to go autopilot and invest the most passive method. The risk is diversified, over the largest amount of stock or bonds.
You may se yourself investing in all of these models, but when the market is down then Warren Buffet is recommended. When the market is flat or not producing great returns apply a value-based investment with great diversity.
When the market gets too high you can rebalance your trading account and the same is true that when you see weakness in the market you can rebalance once again. Always look for an opportunity to make a good return.
No, one knows when the market will be at the top or at the bottom. But one knows when the market is priced fairly or slightly overvalued and when the market is undervalued. This is when a smart person makes their move. When the market is high move some of your investment to safe, and likewise when the market is weak move some of your investment to risk.
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