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info:finance:10_investing_basics_from_buffett [2009/11/01 13:32] – tomgeeinfo:finance:10_investing_basics_from_buffett [2009/11/01 13:33] (current) – tomgee
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 Third, frugal people don't need fast returns to support extravagant lifestyles. This leaves them free to think more clearly about when to buy and sell stocks, making them much better investors, believes Stephen Shueh, a Buffett expert and managing partner of Roundview Capital in Princeton, N.J. Third, frugal people don't need fast returns to support extravagant lifestyles. This leaves them free to think more clearly about when to buy and sell stocks, making them much better investors, believes Stephen Shueh, a Buffett expert and managing partner of Roundview Capital in Princeton, N.J.
  
-**Lesson No. 2: Wait for the 'fat pitch'\\**+**Lesson No. 2: Wait for the 'fat pitch'**
  
 Resist the itch to constantly buy or sell stocks. Resist the itch to constantly buy or sell stocks.
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 The key throughout this analysis is to look back over five years or more. Buffett wants to see a consistent operating history; he's not into startup companies. He also prefers to gauge how well a company does in different kinds of markets, not just the good times or the latest quarter. The key throughout this analysis is to look back over five years or more. Buffett wants to see a consistent operating history; he's not into startup companies. He also prefers to gauge how well a company does in different kinds of markets, not just the good times or the latest quarter.
  
-Lesson No. 7: Look for companies with economic moats\\+**Lesson No. 7: Look for companies with economic moats** 
 A key characteristic supporting consistent operating history is a sustainable competitive advantage. In other words, a company should have a barrier to entry -- or a kind of moat -- that keeps potential competitors at bay. A key characteristic supporting consistent operating history is a sustainable competitive advantage. In other words, a company should have a barrier to entry -- or a kind of moat -- that keeps potential competitors at bay.
  
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 BNSF Railway is a great example of a "franchise" business. It's pretty hard for anyone to lay enough track in North America to start a competing railroad. Coca-Cola (KO, news, msgs), another long-term Buffett holding, has barriers to entry in the form of a strong global brand and distribution system that is hard to replicate. BNSF Railway is a great example of a "franchise" business. It's pretty hard for anyone to lay enough track in North America to start a competing railroad. Coca-Cola (KO, news, msgs), another long-term Buffett holding, has barriers to entry in the form of a strong global brand and distribution system that is hard to replicate.
-Lesson No. 8: Buy big, concentrated positions+ 
 +**Lesson No. 8: Buy big, concentrated positions** 
 Most professional money managers protect against risk by diversifying. Buffett goes against the crowd here, too. When he finds a company he likes, he piles into it big time. Most professional money managers protect against risk by diversifying. Buffett goes against the crowd here, too. When he finds a company he likes, he piles into it big time.
  
 This is crucial to his success. Money manager Hagstrom calculates that if you eliminate a dozen of Buffett's best investment choices over his career, he's only an average performer. Buffett thinks his risk protection comes from understanding a business better than the market does and then being patient enough to buy it at the right price. This is crucial to his success. Money manager Hagstrom calculates that if you eliminate a dozen of Buffett's best investment choices over his career, he's only an average performer. Buffett thinks his risk protection comes from understanding a business better than the market does and then being patient enough to buy it at the right price.
  
-Lesson No. 9: Hold for life\\+**Lesson No. 9: Hold for life** 
 Buffett quips that his favorite holding period is "forever." Embedded in this concept are two key Buffett tenets I've already alluded to. First, it's worth investing only in companies that are good enough to outperform for decades. Next, you have to think on your own and avoid the madness of the crowd. Buffett quips that his favorite holding period is "forever." Embedded in this concept are two key Buffett tenets I've already alluded to. First, it's worth investing only in companies that are good enough to outperform for decades. Next, you have to think on your own and avoid the madness of the crowd.
  
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 The price of his company's stock -- always a major part of his wealth -- dropped 31% in 2008 and continued to follow the market down early this year. Since, it and the market have rallied strongly. The price of his company's stock -- always a major part of his wealth -- dropped 31% in 2008 and continued to follow the market down early this year. Since, it and the market have rallied strongly.
  
-Lesson No. 10: Believe in America\\+**Lesson No. 10: Believe in America**
  
 Unlike most investors, Buffett doesn't tweak his portfolio depending on which party is coming into office or where we are in the economic cycle. This may make him seen naive. But it also has him putting money to work now, when many others have lost faith in the U.S. economic system. It's a move that will likely make him a winner down the road yet again. Unlike most investors, Buffett doesn't tweak his portfolio depending on which party is coming into office or where we are in the economic cycle. This may make him seen naive. But it also has him putting money to work now, when many others have lost faith in the U.S. economic system. It's a move that will likely make him a winner down the road yet again.
info/finance/10_investing_basics_from_buffett.1257100330.txt.gz · Last modified: 2009/11/01 13:32 by tomgee