“I always knew I was going to be rich. I don’t think I ever doubted it for a minute.” (Warren Buffett)
Warren Buffett has been a part of the investment World for several decades. His investment career started young and then gradually evolved through experience, intrinsic know how, mentorship, education, employment and then leadership. Warren Buffett is a deeply admired and respected personality in the financial World because his investment principles are not only sound, but effective and ethical.
By his early financial career, Warren Buffett was already well immersed in the financial world having invested in his teens and founding an investment company in his mid-twenties. By this point he had also already worked as a stockbroker, become educated at a reputable academic institution, mentored under a prominent financial specialist of the time, and taught investing at the University of Nebraska. By age 32, Warren Buffet was a millionaire.
Buffett’s investment principles
Warren Buffett does not just randomly pick companies to buy, he chooses them based on a detailed set of requirements and qualifications that indicate or point to Buffett’s investment principles. A few of those inferred principles are outlined below. While these principles may not be entirely accurate and/or representative of Buffett’s investment strategy they are based on information about Warren Buffett’s investment style.
• Due diligence: Research companies thoroughly
• Value: Companies that are priced below their expected future performance
• Leadership: If a business isn’t managed well, Buffett tends to shy away
• Financial Performance: Companies should have high profit margins and high market share
Investment strategy employed by Buffett
In addition to investment principles, Warren Buffett is known to employ investing strategy. The strategy used by Buffett is not believed to be complicated but is thought to be accurate and financially astute by observers of Buffett. Essentially, some of the key components of Buffett’s investment strategy include the following:
i) Invest for the long-term: Short term trends don’t matter when a company is destined for profit.
ii) Financial performance: If a company experiences losses, low profit margin, poor return on assets among other financial metrics, the company probably won’t be invested in by Buffett.
iii) Size: Given the magnitude of Berkshire Hathaway, companies must be large to yield significant returns to the profitability of the company Buffett invests for.
iv) Industry: If the industry is too complicated or out of Buffett’s are of knowledge, it presents a risk that disfavor’s it from a Buffett investment qualification.
Clearly, Warren Buffett’s track record and investment strategy have worked for him and thus have measured credence. Moreover, all the factors and decisions that go through Warren Buffett’s mind when selecting businesses to invest in are not mentioned above. Rather, some of the more well known and studied factors of his investment style are illustrated.
What these principles and elements of strategy indicate is Warren Buffett is a disciplined, analytical and business minded investor who doesn’t take great risk. He favors long term investing and sound management as well as clear market domination. In fact, these are principles that many astute business people follow which makes Buffett’s investment style even more intriguing because he does it better than others who are familiar with the same principles and strategy.
To summarize, the investment style of Warren Buffett is well developed and merited by the success of the company he helps manage named Berkshire Hathaway. His investment style is given further credence by his personal worth, integrity and stellar reputation within the financial community. As a matter of financial strategy, all reputation aside, Buffett’s investment style is safe, long term and studied making it a suitable investment model for aspiring investors, new and existing mutual fund managers and financial institutions.