Stock Valuation and More From Warren Buffett
Focus on stock valuation. We've said this should be an essential part of your due diligence before you invest your money in a stock. You must know what a company's worth, and whether you can get it at a good price. There are other factors you need to check out, but stock valuation's one of the most important.
Of course, analyzing a stock's valuation isn't unique to me or my firm. Probably the most famous exponent of the "value" approach to stocks is Warren Buffett. But recently people said Buffet, who's now in his mid-70's, was a bit out of touch. They've been saying that every few years, especially since he got into his 60's. But just when you think he's lost his touch, he comes up with something. This past year was the most profitable year ever for his company, Berkshire Hathaway.
Recently Buffet was interviewed in the Wall Street Journal. Check out the March 1st Journal if you want to read it. But I wanted to share the highlights of his approach to investing. In bullet form:
While you can probably understand some of these points, on their own, I thought I'd comment on a few in the next couple of posts. I can't really add any more brilliance to what Buffett says, but I can give you some perspective on these points based on what I see in my day to day work.
I'll group the points as follows:
First, we'll talk about "Stay liquid" along with the next two: "Buy when everyone else is selling" and "Don't buy when everyone else is buying." These three go together.
Next, we'll explore what's behind "Value, value, value," along with "Don't get suckered in by big growth stories." You'll find that these two will make "Understand what you own" very clear. (Don't be deceived by the simplicity of "Understand what you own." It sounds kind of obvious, but most people have no idea what investments they own.)
Finally, we'll take a hard look at "Defense beats offense." Most people totally ignore defense. They look at investments mostly as a way to "make money." But as much as investments can and should make you money, they can and must preserve what you have as well. In fact, if you spend as much (I'd say even more) time on preserving what you have as you do on making money, you'll be much better off in the long run.
Warren Buffet's been a great investor for many years - maybe the greatest pure investor of all. I don't slavishly follow everything he does (I know some people who do.). But I respect what he's done and know that learning from a master always leads to an increase in not only knowledge, but also, understanding, even wisdom.
Stock valuation is just a starting point. Now we'll let Warren Buffet help us turn our knowledge and understanding of the importance of stock valuation into some real wisdom that we can apply to our investing. OK? Stay tuned...
Of course, analyzing a stock's valuation isn't unique to me or my firm. Probably the most famous exponent of the "value" approach to stocks is Warren Buffett. But recently people said Buffet, who's now in his mid-70's, was a bit out of touch. They've been saying that every few years, especially since he got into his 60's. But just when you think he's lost his touch, he comes up with something. This past year was the most profitable year ever for his company, Berkshire Hathaway.
Recently Buffet was interviewed in the Wall Street Journal. Check out the March 1st Journal if you want to read it. But I wanted to share the highlights of his approach to investing. In bullet form:
- Stay liquid.
- Buy when everyone else is selling.
- Don't buy when everyone else is buying.
- Value, value, value.
- Don't get suckered in by big growth stories.
- Understand what you own.
- Defense beats offense.
While you can probably understand some of these points, on their own, I thought I'd comment on a few in the next couple of posts. I can't really add any more brilliance to what Buffett says, but I can give you some perspective on these points based on what I see in my day to day work.
I'll group the points as follows:
First, we'll talk about "Stay liquid" along with the next two: "Buy when everyone else is selling" and "Don't buy when everyone else is buying." These three go together.
Next, we'll explore what's behind "Value, value, value," along with "Don't get suckered in by big growth stories." You'll find that these two will make "Understand what you own" very clear. (Don't be deceived by the simplicity of "Understand what you own." It sounds kind of obvious, but most people have no idea what investments they own.)
Finally, we'll take a hard look at "Defense beats offense." Most people totally ignore defense. They look at investments mostly as a way to "make money." But as much as investments can and should make you money, they can and must preserve what you have as well. In fact, if you spend as much (I'd say even more) time on preserving what you have as you do on making money, you'll be much better off in the long run.
Warren Buffet's been a great investor for many years - maybe the greatest pure investor of all. I don't slavishly follow everything he does (I know some people who do.). But I respect what he's done and know that learning from a master always leads to an increase in not only knowledge, but also, understanding, even wisdom.
Stock valuation is just a starting point. Now we'll let Warren Buffet help us turn our knowledge and understanding of the importance of stock valuation into some real wisdom that we can apply to our investing. OK? Stay tuned...
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