The Warren Buffett Way Investment is a patience game. All investors need to have patience to become successful one. In this book, “The Warren Buffett Way”, written by Robert G Hagstorm has given several key aspects of Warren Buffett ideology in stock market investment. We all know Buffett has accumulated all of his wealth by investing in stock market. According to him there is no significant difference between buying a business outright and buying a piece of business in the form of share of stock. Thi s book has been divided into eight chapters; each chapter has given a significant lesson for the investors to accumulate wealth in stock market. Chapter 1: A Five Sigma Event: The World’s Greatest Investors Chapter
2: The Education Of Warren Buffett Chapte r 3: Buying a Business: The Twelve Immutable Tenets
Chapter 4: Common Stock Purchase: Nine Case Studies Chapter
5: Portfolio management: The Mathematics of Investing Chapter
6: The Psychology of Investing
Chapter 7: The Value of Patience
Chapter 8: The Wor ld’s Greatest Investors
Key Takeaways:
❖ Business Tenets: While investing in stock market Buffett doesn’t think about the market theory, macroeconomic factors, sectors trends etc. He focuses on,
• Concept Of Business: Invest in those stocks which is relevant to understand their business models for you . Before investing all the investors need to have a clear generated models idea about the mode of operations, revenue , capital allocation model, cash flow etc. Understanding the business model allows investors to manage their portfolio efficiently.
• Consistent Operating History: All businesses need to have consistency in their operation. If a business is able to generate consistent result over a period of time wi th same product and services, then it is reasonable to assume that those result will continue .
Favourable long-Term Prospect: Every organisation needs to have long term plan sustainable planning. While investing investors need to have focus on long term prospect of business.
❖ Management Tenet: Organisation can’t be succeeded in long term if the management is not honest and consistent. Role of the managers is not only to make organisation profitable but also to efficient allocation of capital for creating shareholders wealth. Managers need to be,
• Rational
• Candor: Management need report company’s performance with genuinely before shareholders and admits mistakes as well as share success.
Strong management can make the company’s head held high. Every individual investors need to analyse behaviour of management before investing.
❖ Financial Tenets: One of the most important tenets of investing is to analyse the financial position of an Organisation. Investors need to invest by keeping following things in mind,
• Chose those companies whose profit margin is high to avoid loss.
• The value of the company should be accurate with the share price.
• Past Performance of the company and how management has accomplished its goal of creating shareholders value.
❖ Market tenets: Rational investing of a company has two components,
• What is the value of the business?
• Can the business be purchased at a significant discount to its value?
Determining the cash flow with a degree od certainty plays an important role while investing.
❖ Besides all the above points its also important to build a focus portfolio. In this chapter several examples of focus investors are there which will help investors to build efficient portfolio for long term success.
❖ Patience is the key factor in stock market investing, slowly and careful analysis of every situation is an important factors all investors need to do.
Several ways of Warren Buffett have been mentioned here which will help the investors for creating efficient portfolio and help them to maximise their wealth. All words will fall short to describe how outstanding book it is.
Conclusion: In this book the Buffett’s principles of investment have been analysed in a broader way. Author has also captured the ideology of Benjamin Graham, Philip Fisher and Charlie Munger. Individual investors can navigate the rule, ideology and principles of the world greatest investors. Author has n icely combined the psychological phenomenon of investment with probability theories. In one sentence it’s not a Investment book it’s an Investment Bible.
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He looks for companies he understands, with favorable long-term prospects, that are operated by honest and competent people, and, importantly, are available at attractive prices.Highlighted by 1,047 Kindle readers- “An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”Highlighted by 1,041 Kindle readers
- 1. Focus on return on equity, not earnings per share. 2. Calculate “owner earnings” to get a true reflection of value. 3. Look for companies with high profit margins. 4. For every dollar retained, make sure the company has created at least one dollar of market value.Highlighted by 913 Kindle readers
- The key lesson that Buffett took from Graham was: Successful investing involves purchasing stocks when their market price is at a significant discount to their underlying business value.Highlighted by 905 Kindle readers
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