Buy Stocks Like Warren Buffett
After you have gotten over all of the euphoria about how you are going to buy stocks to get rich; it is time to actually develop a plan. We all would love to be able to buy stocks like Warren Buffett. Trying to invest like Buffett has become a phenomenon with many fund managers and stockpickers trying to duplicate the success of Warren Buffett. There are even books written about his investing style and Buffett’s investment returns. This website (Buy Like Buffett) is even named after Buffett.
Buy Stocks Using Warren Buffett’s Method
He has been able to generate a 20% average annual return for more than three decades and has a knack for being able to find great investment opportunities. Buffett is a classic value investor having studied under the legendary Benjamin Graham. His investment philosophy has enabled him to be successful in both bull and bear markets.
Buffett started investing in his early years. He read all of the books on investing at his local library by the age of 11. He bought his first stock when he was a teenager and continued to progress as an investor throughout his adult life. Buffett was able to buy a failing textile mill called Berkshire Hathaway. Today that small company is one of the largest and most successful holding companies in the world.
The fortune of Buffett has grown to over $50 billion dollars today and his investing prowess has made a fortune for a number of investors. Since Buffett has been so successful at investing, we will take a look at some of the characteristics that Warren looks for when investing in stocks.
Stock investing is by no means a get rich quick formula. It is a wealth building process that may take years to see results. Before investing in any stock, you need to be aware of the risks involved. There are ups and downs when investing and the prudent investor is prepared for both environments. A rational stock investor can make money in the market over the long term.
Follow this handy checklist that a stock investor should use before investing in the market.
1. Make sure that you have enough money
Fund your emergency savings account so that you have money in case of an emergency. You never know when you will need access to your cash and you don’t want to be forced to sell your investments to meet your liquidity needs. You would be surprised at the number of investors that are forced to liquidate their portfolios during bear markets to pay bills. Don’t let this happen to you. Only invest money that you can afford to go without for at least 5 years.
2. Create your investing strategy
Figure out what type of stock investor you are and which types of stocks best fit your risk level and return assumptions. Growth investors may look for stocks that are able to grow earnings at a much faster rate than competitors. Value investors will look for value stocksthat are trading at a discounted level. Blended investors will look for both types of stocks. Long term investors will have a strategy that judges results over several years whereas short term traders will judge results over weeks and months.
3. Select a broker
You can buy stocks through a broker, direct stock purchase plan, mutual fund, index fund, retirement account, or dividend reinvestment plan. There are so many different options that you can select from. Discount brokersare often the best option for investors that want to build a stock portfolio because they offer low fee pricing that makes it easy for self directed investors to buy and sell a number of different assets. Find a broker that has a minimum investment amount that you can handle, a low fee structure, and has all of the investment choices that you need.
4. Research your investments
Once your brokerage account is open and funded, it’s time to start doing your research. You can use sites like Google Finance, Yahoo Finance, AOL Dailyfinance to look at the fundamentals of a company. All of these sites are free and offer a lot of useful information. Fundamental investors will need to look for specific criteria like P/E ratios, earnings growth, and long term debt. You can get a complete list by getting a free copy of the 10 Things To Look For When Buying A Stock.
5. Build a diversified stock portfolio
Constructing a diversified portfoliomeans that you should have a stock that covers each of the major industries. The reason that you want a diversified portfolio is because one sector can thrive while another struggles. For example, the consumer staples sector may thrive during an economic recession while a cyclical industry like construction will struggle.
You need a technology company, financial company, real estate company, consumer staple company, healthcare company, oil and gas company, and a retail company. The allocation of assets does not have to be equal however. You can however plunge more money into your favorite company and less into your least favorite companies.
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In the following clip Buffett gives some insight into what he looks for when he buys and sells a stock. The smart money always follows Warren!