3 Ways to Invest Like Warren Buffett

Warren Buffett follows a set of simple investment rules that you can apply for yourself - as long as you have the discipline.

Aug 17, 2014 at 2:29PM


Source: Flickr

Warren Buffett has made a name for himself as the world's most successful investor. Starting out as a young financial analyst in the 1950s hunting for undervalued companies, which oftentimes had a financial industry background, Buffett has turned his investment vehicle Berkshire Hathaway into one of the world's largest conglomerates, which invested in everything from home construction to rail road companies.

His investing success has made Buffett one of the wealthiest men on the planet: Forbes pegs his wealth at around $64 billion making him the third richest man in the world behind Bill Gates and Carlos Slim.

Most famously, he invested in highly recognizable American companies such as Coca-Cola, Wells Fargo, IBM and American Express. Buffett has repeatedly stated that he doesn't intend to sell his stakes in those four American icons and cornerstone investments indicating that he still remains highly confident in their earnings prospects.

Investors who want to emulate Buffett and his successful value investing philosophy certainly can apply a set of very easy-to-follow principles in order to achieve investment success:

1. Invest when others are too scared
The number one thing that clearly stands out and differentiates Buffett-style value investing is his willingness to invest when others are too scared. He famously coined the phrase "Be greedy when others are fearful and be fearful when others are greedy". This pretty much sums it up. But it is a lot harder to do than it sounds.

During the financial crisis there weren't a lot of people who would have been willing to buy equities at all, especially not in the financial sector. But Buffett, staying true to his own investing wisdom, invested in  Goldman Sachs at the height of the financial crisis in 2008.

It was a courageous move and one that paid off. The dire situation of the financial sector and the failure of Lehman Brothers contributed to a massive panic in the industry during 2008 with stocks falling off a cliff. At that point of time, Buffett went all in.

He negotiated for a $5 billion preferred stock stake and demanded a $5 billion warrant position that would allow him to add to his existing preferred equity stake at a price of $115 per share. Since the economy and the financial industry have rebounded strongly since 2008, it certainly seems to have been a very savvy move.

Goldman Sachs' stock price stands at about $170 now and Warren Buffett made a few, cool billions with his 'against the crowd' investment.

2. Simple, quality companies
Another key characteristic Buffett is looking for is, that they must be easy-to-understand, quality companies.

Quality companies in this context means that they must have a strong product and a competitive advantage that allows them to continue to sell ever higher volumes of their products. Many companies Buffett invests in have great earnings records meaning they are able to consistently increase their revenues year over year for a long time.

The best example is probably Coca Cola. The product is successful in constantly increasing sales and earnings and the company sells its products in countries around the globe. Coca Cola benefits from its large size, strong distribution network and high product recognition.


Source: Flickr

3. Top management
The third ingredient to successful, Buffett-like investing relates to a company's top management. Buffett likes to invest in companies with a management team that takes on an owner perspective and has a long-term view.

The last part of the equation, a long-term view, should never be underestimated. Wall Street is usually obsessed with short-term earnings and wants to see results rather sooner than later.

Warren Buffett, on the other hand, is the perfect antidote to impatient short-term investing and is willing to do anything that needs to be done to get a company into a good shape for the long-term.

The Foolish Bottom Line
Warren Buffett's investment philosophy makes a hell of a lot of sense and is actually quite straightforward: Invest in quality companies with good management that are easy to understand and be prepared to pull the trigger when nobody else wants to.

The most difficult thing about it, is to control your emotions and not to give in to the persistent noise from Wall Street which wants to encourage you to trade and collect your commissions.

Buffett's approach to investing has been proven over many decades and investors surely can learn a lot from it.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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