WARREN BUFFETT

“Charlie and I havenot learned how to solve difficult business problems,” Buffett admits.

In evaluating people, you look for three qualities: integrity,intelligence, and energy. If you don’t have the first, the othertwo will kill you.
WARREN BUFFETT, 1993

I read annual reports of the company I’m looking at and I readthe annual reports of the competitors. That’s the main sourcematerial.WARREN BUFFETT, 1993We like to keep things simple, so the chairman can sit aroundand read annual reports.
CHARLIE MUNGER, 1993

he purposely limits his selections to companiesthat are within his area of financial and intellectual understanding. years. “When investing,” he says, “we viewourselves as business analysts—not as market analysts, not as macroeconomicanalysts, and not even as security analysts.” Investing is most intelligent when it is businesslike.I am better investor because I am a businessman,”Buffett says.” and a better businessman because I am a invester. if you have lowest price, costumers will find you at the bottom of the river. Graham had taught Buffett the two fold significance of emotion in investing of emotion- the mistake it tiggers for those who base irrational decision on it, and the opportunities it thus creats for those who can avoid falling into the same trap.
Buffett combination of two.

THE WARREN BUFFETT WAY
Business Tenets
1. Is the business simple and understandable?
2. Does the business have a consistent operating history?
3. Does the business have favorable long-term prospects?Management Tenets
4. Is management rational?
5. Is management candid with its shareholders?
6. Does management resist the institutional imperative?Financial Tenets
7. What is the return on equity?
8. What are the company’s “owner earnings”?
9. What are the profit margins?
10. Has the company created at least one dollar of marketvalue for every dollar retained?Value Tenets
11. What is the value of the company?
12. Can it be purchased at a significant discount to its value?

The differences between Graham and Fisher are apparent. Graham, the quantitative analyst, emphasized only those factors that could be measured: fixed assets, current earnings, and dividends. His investigative research was limited to corporate filings and annual report. He spend no time interviewing customers, competitors, or managers.Fisher’s approach was the antithesis of Graham. Fisher, the quallitative analyst, emphasized those factors prospects and management capability. Whereas Graham was interested in purchasing only cheap stocks, Fisher was interested in purchasinh companies that had the potential to increase their intrinsic values over the long term. He would go to great lengths, including conducting extensive interviews, to uncover bits of information that might improve his selection.

I buy businesses, not stocks, business I would be willing to own forever- Buffett

Buffett is often asked what types of companies he will purchase in the future. First , he says, I will avoid commondity business and managers that I have little confidence in. He has three touchstones: It must be the type of company that he understood, possessing good economics, and run by trustworthy managers. That’s also what he looks for in stocks- and for the same reasons.

All we want to be in business that we understand, run by people whom we like, and priced attractively relative to their furute prospects.

Think of buying stocks as buying fractional intrests in whole business.Construcy a focused low-turnover portfolio.Invest in only what you can understand and analyze.Demand a margin of safety between the purchase price and the company’s long-term value.Buffett had learned Ben Graham’s lesson well: When stocks of a strong company are selling below their intrinsic value, act decisively.

Appearing on the PSB shoe Money World in 1993, Buffett was asked what investment advice he would give a money manager just starting out. I’d tell him to exactly what I did 40-years ago., which is to learn about every company in the United States that has publicly traded securities.Moderator Adam Smith protested,” But there’s 27000 public companies.”Well said Buffett,” start with the A’s”.Capital IdeasPeter Bernstein The Theory of Investment Value.John Burr Williams The basic ideas of investing are to look at stocks as business, use market fluctuations to your advantage, and seek a margin of safety. That what Ben Graham taught us. A hundred years from now they will still be the cornerstones of investing. Security AnalysisGraham and Dodd You have to be yourself. Use Berkshire Hathaway annual report as part of the training material. Graham’s book The intelligent investor

stocks the game of calculated risk, fear and greed

Overconfidence
Several psychological studies have pointed out that errors in judgmentoccur because people in general are overconfident. Ask a large sampleof people how many believe their skills at driving a car are above average,and an overwhelming majority will say they are excellent drivers.Another example: When asked, doctors believe they can diagnose pneumonia with 90 percent confidence when in fact they are right only 50 percent of the time.

I came to the psychology of misjudgment almost against mywill; I rejected it until I realized my attitude was costing me a lot of money.CHARLIE MUNGER, 1995

Investors have the following characteristics:
• True investors are calm.
• True investors are patient.
• True investors are rational.

Ben Graham, as we know, fiercely urged his students to learn the basicdifference between an investor and a speculator. The speculator, he said,tries to anticipate and profit from price changes; the investor seeks onlyto acquire companies at reasonable prices. Then he explained further:The successful investor is often the person who has achieved a certaintemperament—calm, patient, rational. Speculators have the oppositetemperament: anxious, impatient, irrational. Their worst enemy is not the stock market, but themselves. They may well have superior abilitiesin mathematics, finance, and accounting, but if they cannot mastertheir emotions, they are ill suited to profit from the investment process.

Success in investing doesn’t correlate with IQ once you’reabove the level of 125. Once you have ordinary intelligence,what you need is the temperament to control the urges thatget other people into trouble in investing.1WARREN BUFFETT, 1999

It is a complex, puzzling, intriguing study. Few aspects of humanexistence are more emotion-laden than our relationship to money. Andthe two emotions that drive decisions most profoundly are fear andgreed. Motivated by fear or greed, or both, investors frequently buy orsell stocks at foolish prices, far above or below a company’s intrinsicvalue. To say this another way, investor sentiment has a more pronouncedimpact on stock prices than a company’s fundamentals.

To make his point, Buffett asks us to imagine what happens if youbuy a $1 investment that doubles in price each year. If you sell the investmentat the end of the first year, you would have a net gain of $.66(assuming you’re in the 34 percent tax bracket). Now you reinvest the$1.66, and it doubles in value by year-end. If the investment continuesto double each year, and you continue to sell, pay the tax, and reinvestthe proceeds, at the end of twenty years you would have a net gain of$25,200 after paying taxes of $13,000. If, on the other hand, you purchaseda $1 investment that doubled each year and never sold it until theend of twenty years, you would gain $692,000 after paying taxes of approximately$356,000.

Focus investing is necessarily a long-term approach to investing. If wewere to ask Buffett what he considers an ideal holding period, he wouldanswer “forever”—so long as the company continues to generate aboveaverageeconomics and management allocates the earnings of the companyin a rational manner. “Inactivity strikes us as intelligent behavior,”he explains.

As a general rule of thumb, we should aim for a turnover rate between20 and 10 percent, which means holding the stock for somewherebetween five and ten years.

You can see why Buffett says the ideal portfolio should contain nomore than ten stocks, if each is to receive 10 percent. Yet focus investingis not a simple matter of finding ten good stocks and dividing yourinvestment pool equally among them. Even though all the stocks in afocus portfolio are high-probability events, some will inevitably behigher than others, and they should be allocated a greater proportion ofthe investment.Blackjack players understand this intuitively: When the odds arestrongly in your favor, put down a big bet.

THE FOCUS INVESTOR’S GOLDEN RULES
1. Concentrate your investments in outstanding companiesrun by strong management.
2. Limit yourself to the number of companies you can trulyunderstand. Ten to twenty is good, more than twenty isasking for trouble.
3. Pick the very best of your good companies, and put thebulk of your investment there.
4. Think long-term: five to ten years, minimum.
5. Volatility happens. Carry on.

“We just focus on a few outstanding companies. We’re focus investors.”WARREN BUFFETT, 1994

“The market, like theLord, helps those who help themselves,” says Buffett. “But unlike theLord, the market does not forgive those who know not what they do.”

Great investment opportunities come around when excellentcompanies are surrounded by unusual circumstances that causethe stock to be misappraised.WARREN BUFFETT, 1988

few timeless financial principles:
• Focus on return on equity, not earnings per share.
• Calculate “owner earnings” to get a true ref lection of value.
• Look for companies with high profit margins.
• For every dollar retained, has the company created at least a dollar of market value?

Warren Buffett gives us some valuable tips:33
• “Beware of companies displaying weak accounting.” In particular,he cautions us to watch out for companies that do not expensestock options. It’s an obvious red f lag that other less obvious maneuversare also present.
• Another red f lag: “unintelligible footnotes.” If you can’t understandthem, he says, don’t assume it’s your shortcoming; it’s a favoredtool for hiding something management doesn’t want youto know.
• “Be suspicious of companies that trumpet earnings projectionsand growth expectations.” No one can know the future, and anyCEO who claims to do so is not worthy of your trust.

Expand your reading horizons. Be alert for articles in newspapersand financial magazines about the company you are interested in andabout its industry in general. Read what the company’s executives haveto say and what others say about them. If you notice that the chairmanrecently made a speech or presentation, get a copy from the investorrelations department and study it carefully. Make use of the company’sweb pages for up-to-the-minute information. In every way you canthink of, raise your antennae. The more you develop the habit of stayingalert for information, the easier the process will become.

stocks – the game of fear and greed

Investing is not that complicated. You need to know accounting,
the language of business. You should read The Intelligent
Investor. You need the right mind-set, the right temperament.
You should be interested in the process and be in your circle of
competence. Read Ben Graham and Phil Fisher, read annual
reports and trade reports, but don’t do equations with Greek
letters in them.8
WARREN BUFFETT, 1993

But if Buffett were given the same test, he
would begin by methodically measuring the business against his basic
tenets, one by one:
• Is the business simple and understandable, with a consistent operating
history and favorable long-term prospects?
• Is it run by honest and competent managers, who allocate capital
rationally, communicate candidly with shareholders, and resist the
institutional imperative?
• Are the company’s economics in good shape—with high
profit margins, owners’ earnings, and increased market value that
matches retained earnings?
• Finally, is it available at a discount to its intrinsic value? Take note:
Only at this final step does Buffett look at the stock market price.

Step Two: Don’t Worry about the Economy
Just as people spend fruitless hours worrying about the stock market
so, too, do they worry needlessly about the economy. If you find
yourself discussing and debating whether the economy is poised for
growth or tilting toward a recession, whether interest rates are moving
up or down, or whether there is inf lation or disinf lation, STOP!
Give yourself a break.

Buffett prefers to buy a business that has the opportunity to profit
in any economy.

Stocks are simple. All you do is buy shares in a great business
for less than the business is intrinsically worth, with management
of the highest integrity and ability. Then you own those
shares forever.2
WARREN BUFFETT, 1990

I am sure, two reasons understanding
the human dynamic is so valuable in your own investing:
1. You will have guidelines to help you avoid the most common
mistakes.
2. You will be able to recognize other people’s mistakes in time to
profit from them.

I came to the psychology of misjudgment almost against my
will; I rejected it until I realized my attitude was costing me a
lot of money.9
CHARLIE MUNGER, 1995

THE WARREN BUFFETT WAY

1. Is the business simple and understandable?

2. Does the business have a consistent operating history?

3. Does the business have favorable long-term prospects? Management Tenets

4. Is management rational?

5. Is management candid with its shareholders?

6. Does management resist the institutional imperative?Financial Tenets

7. What is the return on equity?

8. What are the company’s “owner earnings”?

9. What are the profit margins?

10. Has the company created at least one dollar of marketvalue for every dollar retained? Value Tenets

11. What is the value of the company?

12. Can it be purchased at a significant discount to its value?

WARREN BUFFETT

BuffettHe brought his first stock when he was 11.
He buys to hold-buys and holds.
Buffett If u r not willing to own a stock for 10 years don’t even think of owning it for 10 minutes.

Never put more than 10% of our assets into your mad money account, no matter what happens.
A great company is not a great investment if you pay too much for the stock.For most of us, 10% of our overall wealth is the maximum permissible amount to put at speculative risk.

Investing isn’t about beating others at their game. It’s about controlling yourself at your own game.

Buffett
Buy an outstanding company now.

The intelligent investor must focus not just on getting the analysis right. You must also ensure against loss if your analysis turns out to be wrong-as even the best analyses will be at least some of the time.
Graham is saying that there is no such thing as a good or bad stock; there are only cheap stocks and expensive stocks. Even the best company becomes a “sell” when its stock price goes too high, while the worst company is worth buying if its stock goes low enough.
Never dig so deep into the number that you check you’re commonsense at the door, and always read the proxy statement before (and after) you buy a stock.
Ask yourself which company’s stock would be likely to rise more; one that discovers a cure for rare cancer, or one that discovered a new way to dispose of a common kind of garbage. The cancer cure sounds more exciting to most investors, but a new way to get rid of trash would probably make more money.

Never buy a stock immediately after a substantial rise or sell one immediately after substantial drop.
A $10billion company can double its sales fairly easily: but where can a $50-billion company turn to find another $50billion in business the bigger they grow the slower they grow.

As Graham never stops reminding us, stocks do well or poorly in the future because the business behind them do well or poorly-nothing more, and nothing less.
The intelligent investor never dumps a stock purely because its share price has fallen: she always asks first whether the value of the company’s underlying businesses has change.

Berkshire does thing differently.
Fisherwhen to sell1- the original purchase was a mistake.2- the company has change3- there is a better buy out there.

Buffett purposely limits his selections to companies that are within his area of financial and intellectual understanding.

Look for the durability of the franchise. The most important thing to me is figuring out how big a moat there is around the business. What I love, of course, is a big castle and a big moat with piranhas and crocodiles.
WARREN BUFFETT, 1994

When you have able managers of high character running businesses about which they are passionate, you can have a dozen or more reporting to you and still have time for an afternoon nap.
WARREN BUFFETT, 1986